Greco Manufacturing Corporation produces two products—olives and baklava. Olives require $3 of variable costs per bottle and sell for $5 per bottle. Baklava has variable costs of $5 per box and sells for $10. Greco’s total fixed costs amount to $72,250. This year Greco sold 30,000 bottles of olives and 5,000 boxes of baklava. Greco believes that consumer tastes will shift dramatically next year. Although it expects total dollar sales volume to be the same as this year’s sales volume, the product mix will change, so that one-third of the units sold will be boxes of baklava.

Required: (1) Compute Greco’s pretax income for this year.

(2) At what dollar sales volume would Greco have broken even for this year?

(3) Compute Greco’s expected pretax income for next year assuming total dollar sales volume does not change.

(4) Why does Greco expect more pretax income next year than it earned this year when the total dollar sales volume is expected to be the same?

Explain.  Lo1