Organic Strawberry Growers provide gourmet organic strawberries for restaurants in the local area.

The income statement for last year follows (based on sales of 4,000 cases): Income Statement for Last Year

Revenue $400,000

Costs: Wages for pickers and packers $200,000

Packing materials 40,000

Lease of land and growing costs 50,000

Administration and selling 95,000

Inspection wages 10,000

395,000

Pretax income 5,000

Income taxes @ 30% 1,500

After-tax income $ 2,000

Pickers, packers, and inspectors are employed on an hourly basis and can be laid off whenever necessary. Salespeople mostly deliver the product and are paid on a salaried basis.

A. What is the cost function for Organic Strawberry Growers? Explain your assumptions about cost behavior.

B. What is the breakeven point for this business?

C. What sales volume would be necessary for an after-tax profit of $5,000?

D. The manager believes that he can raise and sell 5,000 cases next year. Estimate after-tax profits at that level of sales.

E. Over the last several years, 4,000 cases of strawberries have been grown and sold. What does this information suggest about the quality of information you calculated for part (d)?

F. Describe reasons why the cost function you developed for sales of 4,000 cases might not hold for sales of 5,000 cases.

Sorry no CVP spread sheet needed. That was a typo on professors part.