The Fruit Co has a factory in a regional centre with a full time administrator. During the fruit season the assembly line is staffed with casual workers who are paid by the hour. Last year it sold 30 000 cans of peaches with the following results:
$
Sales revenue ........................................ 900 000
Variable costs ........................................ 630 000
Contribution margin ................................ 270 000
Fixed costs ........................................... 190 000
Operating profit ..................................... 80 000
The company expects variable costs to increase by $3 per can for the current year.
Required:
A. Assuming the unit sale price remains constant, compute the Contribution margin for each can of peaches for the current year.
B. How many cans of peaches will have to be sold this year to earn the same operating profit as last year?
C. Explain why the wage of the factory administrator is treated as a fixed cost of producing cans of peaches but the wages of the workers on the assembly line are treated as a variable cost.