Big Star Condiments produces salsa consumed primarily in North American restaurants. Given below is the projected income statement for the company for 2011.
Pojected Income Statement (2011)
Sales (100,000 cases at $6.50 per case)
$650,000
Cost of goods sold:
Materials
$170,000
Labor
$205,000
Fixed manufacturing expenses
$40,000
Administrative and selling expenses:
Delivery
$25,000
Commissions
$40,000
Advertising
$10,000
Travel
$5,000
Fixed administrative and selling expenses
$12,000
Total costs
$507,000
Net income before taxes
$143,000
Create a report answering the following questions:
Complete the following table using a fully functional Microsoft Excel spreadsheet showing Marginal Revenue (MR), Marginal Cost (MC), Total Revenue (TR), Total Cost (TC), Total Variable Cost (TVC), Total Fixed Cost (TFC), and profits at all possible output levels.
Price
Quantity
Total Revenue
Total Variable Cost
Total Fixed Cost
Total Cost
Profit
$8.00
65,000
$7.75
75,000
$7.50
80,000
$7.25
90,000
$7.00
100,000
$6.75
115,000
$6.50
120,000
• Using Excel, prepare a graph showing the breakeven point and any profit or loss at the current price of $6.50. Explain to the Big Star management the implications of this analysis.
• What is the elasticity coefficient for each price between $6.50 and $7.50? Is the demand elastic or inelastic at these points?
• On the basis of your calculations and the information above, what recommendations would you make to Big Star Condiments in terms of pricing and output levels?
Create your report in a 2- to 3-page Microsoft Word document.
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