wine industrie

James Harris decides to start his own business. He decides to make his own wine according to a recipe received from his mother and to sell it in a commercial building located near his home. In return for his mother's recipe, James agreed to pay her a royalty of 10 cents per bottle sold.

The expenses and income are as follows:

Selling price per bottle $5.00

Variable unit costs:

- Purchase of ingredients Purchase of ingredients for manufacturing and bottling $1.40

- Royalty to his mother $0.10 Total variable costs $1.50

Annual fixed expenses: Rent 10,000 Salaries $5,000 Advertising 2,000 Permits $1,000 Other fixed expenses 3,000 21,000

Questions:

5. Let's refer back to the baseline data. If fixed costs increased by $1.400, what would be the break-even point in dollars and units sold? How many additional units would be needed to cover the increase in fixed costs?

6. Let's refer back to the baseline data. If the royalty to her mother was turned into a fixed cost increase of about $1,000 per year, what would be the break-even point in dollars and units sold? How many additional units would be needed to cover the increase in fixed costs?

7. What will be the accounting profit (or net loss). if (1) 10,000 bottles were sold (2) 12,000 bottles were sold.