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Q 2 ) The KFU's Company is currently operating its mill six days a week, 2 4 hours a day, on three shifts. At current
Q The KFU's Company is currently operating its mill six days a week, hours a day, on three shifts. At current prices, the company could easily obtain a sufficient volume of sales to take the entire output of a seventh day of operation each week. The mill's practical capacity is hundred weight of flour per day. Note that Flour sells for SAR a hundred weight cwt and the price of wheat is SAR a bushel. About bushels of wheat are required per cwt of flour. Fixed costs now average SAR a day, or SAR per cwt The average variable cost of mill operation, almost entirely wages, is SAR per cwtWith Sunday operation, wages would be doubled for Sunday work, which would bring the variable cost of Sunday operation to SAR per cwt Total fixed costs per week would increase by SAR or SAR if the mill were to operate on Sunday.
a Using the information provided, compute the breakeven volumes for sixday and sevenday operation.
b What are the marginal contribution rates for sixday and sevenday operation?
c Compute the average total cost per cwt for sixday operation and the net profit margin per cwt before taxes.
d Would it be economical for the mill to operate on Sundays?
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