A friend who loves whiskey is planning to open a distillery which makes high quality whisky or whiskey, depending on your favored spelling. He tells you at great length how much better his product will be compared to competing products in the marketplace, but has done no analysis to determine if this can be a profitable endeavor and has asked for your help. Surprisingly your friend has done some research and has an idea of costs.

The costs of operating the distillery are as follows:

Rent, Maintenance, Depreciation, Security, and Fixed Overhead : 250,000 / year

Your friend has the option of making one of two different varieties of whiskey

The costs for type 1 whiskey is (VC = 7.22 / case)

Fuel (electricity and gas): 0.30/case

Ingredients: 0.94/case

Packaging: 1.20/case

Labor: 1.78/case

Taxes: 3.00/case

The costs for type 2 whiskey is (VC = 7.82 / case)

Fuel (electricity and gas): 0.40/case

Ingredients: 1.24/case

Packaging: 1.20/case

Labor: 1.98/case

Taxes: 3.00/case

Additionally type 2 whiskey will require an additional piece of equipment which costs 30,000 per year, which does not vary with the amount of whiskey produced

Your friend wants to quit his job to pursue this endeavor and his family will be very unhappy if his income declines. He currently makes an annual pre-tax income of 60,000 dollars.

If type one Whiskey sells for $20 a case, what is the breakeven (in cases) for type 1 whiskey?

How many cases does your friend need to sell of type 1 whiskey to reach a target profit of 60,000?

If your friend decides to produce type 1 whiskey and sells 30,000 cases, what will be his operating leverage? (Ex if they are selling $30,000 cases of Whiskey one should we assume based on question one that the cases are $20/piece?)