CVP Analysis and Special Decisions

Smoothie Company produces fruit purees which it sells to smoothie bars and health clubs. Assume the most recent year's sales revenue was $$11,600,000.$ Variable costs were $55\%$ of sales and fixed costs totaled $$3,120,000.$ Smoothie is evaluating two alternatives designed to enhance profitability.

$$ One staff member has proposed that Smoothie purchase more automated processing equipment.

This strategy would increase fixed costs by $$250,000$ but decrease variable costs to $50\%$ of sales.

$$ Another staff member has suggested that Smoothie rely more on outsourcing for fruit processing.

This would reduce fixed costs by $$250,000$ but increase variable costs to $60\%$ of sales.

StandardMultiformComplexBilling rate$$55$$$130$$$255$Average variable costs$(30)(75)(150)$Average contribution margin$$25$$$55$$$105$Number of returns prepared$1,750500250$

Required

$($a$.)$ Determine Joe's break$-$even dollar sales volume.

Enter billing rates and contribution margins using all decimals, when needed.$$

Round contribution margin ratio to$$three decimal places.

Round break$-$even sales volume to the nearest dollar.Which of the following methods of cost estimation utilizes judgment to determine the cost estimation model?