The available data is available for Milford Vinegar Co.

Bottles

Out put level in (units) 10,000 15,000 20,000

Sale price per bottle $ 18.00 $ 15.00 $ 12.00

Variables production cost $ 37,000 $ 55,500 $ 74,000

Fixed production costs $ 100,000 $ 100,000 $ 100,000

Fixed selling and administrative

costs: $ 40,000 $ 40,000 $ 40,000

Requirements:

1. Prepare contribution Margin income statement for each level of production, including per unit detail.

2. Assuming that the company will sell the output, At what level is profit maximized?

3. Calculate the break even point in dollars sales and units for each level of production.

4. Analyze the pricing schedule that Milford is using-why might Milford offer a lower customer price at higher production levels.

5. Management believes that by dropping the price to $ 10.50 per bottle and paying their sales staff commission of 50 cent per bottle it can sell 24,000 bottles. Do you recommend this approach? provide proof/support for your answer. Explain why the management should be considering in making this decision.