Farm Fresh Food Market

The Farm Fresh Food Market is a merchandiser of organic food items. The company is considering the possibility of selling pomegranates that would sell for [$ TBA] each. Pomegranates can be acquired in unlimited quantities for $0.43 each. There are no additional variable costs associated with acquiring and selling pomegranates since labor is on a salaried basis. However, in order to acquire pomegranates at this price, Farm Fresh must pay $4,000 per year for membership in an International Co-op.

a. How many pomegranates would Farm Fresh need to sell annually to justify joining the co-op (break-even)?

4,000/(.6-.43)=23529.41

b.What would be the total revenue at the break-even point?

23529*.60= $14,117.65

c. How many pomegranates would the company need to sell to earn a NOI of $6,000?

To exactly get an NOI of 6,000 the answer is 58823.5 but you cannot sell have a fruit so you would sell 58824.

d. Prepare a contribution margin income statement for your results in part c.

| C= | Sales | $ 35,294.10 |

58823.5 | D= | VC | $ 25,294.11 |

| | CM | $ 10,000.00 |

| | Fixed | $ 4,000.00 |

| | NOI | $ 6,000.00 |

e. Calculate and explain your operating leverage, assuming your answer for part c. What would your new NOI be if sales dropped by 3%? Use the OL to calculate the new NOI.

For every 1% change in sales you will have a 1.67% change in your NOI.

3% change in Sales = 3 * 1.67 = 5% change in your NOI

OL= | Total CM | $ 10,000.00 |

| OP income | $ 6,000.00 |

| | 1.66666722 |

| | |

.03*1.667= | 0.05 | |

f. Assume that Farm Fresh currently sells 65,000 pomegranates annually. A competing co-op has offered to sell pomegranates to Farm Fresh for $0.45 instead of $0.43, but the annual membership is only $3,500 annually. Should Farm Fresh join the new co-op? Why or why not? Support with computations.

No they should not because if they switched to the new co-op and sold...