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Cost function; breakeven; quality of information; relevant range Oysters Away picks, shucks and packs oysters...

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Accounting

Cost function; breakeven; quality of information; relevant range

Oysters Away picks, shucks and packs oysters and then sells them wholesale to fine restaurants across the state. The statement of profit or loss for last year is as follows.

Revenue (based on sales of 2000 cases of oysters $200,000

Expenses:

Wages for pickers, shuckers and packers $100,000

Packing materials 20,000

Rent and insurance 25,000

Administrative and selling 45,000

$190,000

Pre-tax profit 10,000

Taxes (20%) 2000

After-tax profit $8,000

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

a)Estimate the cost function for Oysters Away.

b)What is the breakeven point in cases for Oysters Away?

c)The manager thinks that the entity will harvest and sell 3000 cases of oysters next year. Estimate the after-tax profit.

d)Oysters Away harvested and sold 2000 cases in each of the last several years. What does this suggest about the quality of the income information you calculated in part ( c )?

e)Describe reasons why the cost function developed for the relevant range up to 2000 cases might not hold for 2001 to 3000 cases.

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