Based on Uncle Joes results from last year, determine which costs are variable and which are fixed, and then develop a contribution margin analysis for the venture.

1.What is the contribution per bottle of juice? What is the contribution margin with the changes that Paul and John want to make, assuming that production and sales remain the same? What is the number of bottles of orange juice that they would need to sell to break even?

2.If Paul and John find that they need to increase their own salary/benefit packages to $110,000, how many bottles would they need to sell? Is this feasible?

3. Should Paul and John investigate further before starting into this venture? What other factors might impact the success of their business? Should they accept?

Miller Orchard

Income Statement

For the Year Ended 12/31/15

Revenues		$500,000
Product costs
Harvest labor	36,000
Extraction labor	22,000
Bottles, labels, caps	125,000
Utilities	4,500
Waste treatment	2,000
Supervisor	80,000
Total product costs		269,500
Gross margin		230,500
Administrative & sales costs
Sales manager	$60,000
Sales commissions	50,000
Office supplies	10,000
Packing/shipping labor	10,000
Packing/shipping supplies	10,000
Total administrative & sales costs		140,000
Net operating profit		$ 90,500

Bottling

Requires 12 pounds of oranges for each bottle of juice.

In the bottling process, the juice is put into bottles, with both bottle caps and labels added during this process. The materials cost associated with the bottles, caps, and labels averages $1.25/bottle.

Direct labor

Harvest labor is paid an average of $9.00/hour. An average of 300 pounds of oranges can be harvested each hour.

Extraction labor is paid an average of $11.00/hour. The extraction process can be completed for 600 pounds of oranges each hour.

Overhead expenses

Supervisor salary -- supervises the production from the cultivation and harvest through the bottling processes. His salary and benefits total $80,000 annually.

Sales salary a sales person receives salary and benefits of $60,000, plus $.50/bottle for each bottle sold.

Packing/shipping labor workers pack 100 bottles per hour for shipment and are paid an average of $10.00/hour.

Waste treatment After crushing, the pulp, seeds, and rind that are left over must be disposed of. One-half of the waste can be recycled back onto the fields as a compost material; the other half must be disposed of at a landfill with a dumping cost of $2,000.