Cost-Volume-Profit Analysis for Forever Pure

by | Jun 17, 2024 | Accounting

 

Forever Pure produces two types of water filters. One attaches to the faucet and cleans all water that passes through the faucet. The other is a pitcher-cum-filter that only purifies water meant for drinking.
The unit that attaches to the faucet is sold for $72 and has variable costs of $20.
The pitcher-cum-filter sells for $88 and has variable costs of $16.
Forever Pure sells two faucet models for every three pitchers sold. Fixed costs equal $960,000.
What is the break-even point in unit sales and dollars for each type of filter at the current sales mix?
Forever Pure is considering buying new production equipment. The new equipment will increase fixed cost by $166,400 per year and will decrease the variable cost of the faucet and the pitcher units by $4 and $8, respectively.
Assuming the same sales mix, how many of each type of filter does Forever Pure need to sell to break even?
Assuming the same sales mix, at what total sales level would Forever Pure be indifferent between using the old equipment and buying the new production equipment?
If total sales are expected to be 23,000 units, should Forever Pure buy the new production equipment?
Assess lessons learned concerning cost-volume-profit analysis and decision making.

 

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Answer

Sample Answer

 

Cost-Volume-Profit Analysis for Forever Pure

Break-Even Analysis at Current Sales Mix

Faucet Filter:

– Selling Price: $72
– Variable Cost: $20
– Contribution Margin per Unit: $72 – $20 = $52

Pitcher-Cum-Filter:

– Selling Price: $88
– Variable Cost: $16
– Contribution Margin per Unit: $88 – $16 = $72

Sales Mix:

– 2 faucet filters for every 3 pitcher-cum-filters

Given that fixed costs are $960,000, the contribution margin ratio for the current sales mix is calculated as follows:
Contribution Margin Ratio = (Contribution Margin per Unit * Units Sold) / Total Sales

Let x be the number of pitcher-cum-filters sold. Then, the number of faucet filters sold will be (2/3)x.

Using the contribution margin ratio formula and the sales mix ratio, we can calculate the break-even point in dollars and units for each type of filter.

Break-Even Analysis with New Production Equipment

With the new production equipment:

– Fixed Cost Increase: $166,400
– Variable Cost Reduction for Faucet Filter: $4
– Variable Cost Reduction for Pitcher-Cum-Filter: $8

The contribution margin per unit for each filter type will change based on the new variable costs. Using the updated contribution margin per unit and the increased fixed costs, we can determine the new break-even point in units for each type of filter.

Comparison between Old and New Production Equipment

To determine the total sales level at which Forever Pure would be indifferent between using the old equipment and buying the new production equipment, we need to calculate the total contribution margin for both scenarios and find the point where they are equal.

Decision on Buying New Production Equipment

Considering total expected sales of 23,000 units, Forever Pure should compare the total contribution margin under both scenarios (old equipment and new equipment) to decide whether buying the new production equipment is financially viable.

Lessons Learned on Cost-Volume-Profit Analysis and Decision Making

Through this analysis, Forever Pure can gain insights into its cost structure, pricing strategies, and break-even points for different product lines. Cost-volume-profit analysis helps in understanding the relationships between costs, sales volume, and profitability. By evaluating different scenarios and considering factors such as fixed costs, variable costs, selling prices, and sales mix, companies can make informed decisions regarding pricing, production levels, and investments in new equipment. This exercise highlights the importance of conducting thorough cost-volume-profit analysis to optimize financial performance and strategic decision-making in a competitive market environment.

 

 

 

 

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