I know this has to do with oportunity cost and the associated risk, but I'm not sure how to make a detemrination. This is question #4 on the attachement. I alreay completed the first 3 questions.Pet Park is trying to improve its market position with respect to dog food and would ideally like to become more competitive in this area. They have the opportunity to invest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvage value) that would reduce variable costs of manufacturing the dog food line from $21/case to $18/case. Pet Park believes that This would increase demand of their dog food to the extent that they could expect the total revenue split to be 60% (cat food) to 40% (dog food). Should they do it?_____________________________________Information:Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000. Cat food sales represent 80% of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed on a per-case basis: SellingContribution PriceMarginCat food$40$16Dog food$30$9 Practice 2:Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000Cat food sales represent 80 % of the company's total revenue. Dog food sales constitute theremaining 20%. The company has provided the following information expressed ona per-case basis:SellingContributionPriceMargin$16$9Cat foodDog food$40$30(a) The total monthly sales revenue required to break-even is $(Rounded)(b) The total monthly sales revenue required to eam an operating income of $135,000 is(c) The company's margin of safety at a monthly sales level of $2,500,000 is $(d) Pet Park is trying to improve its market position with respect to dog food and wouldideally like to become more competitive in this area. They have the opportunity toinvest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvagevalue) that would reduce variable costs of manufacturing the dog food line from$21/case to $18/case. Pet Park believes that This would increase demand of their dogfood to the extent that they could expect the total revenue split to be 60 % ( cat food) to40% (dog food). Should they do it?

This is a question of cost benefit analysis. We have to see whether there is any gain/ profit after…

Answered: Practice 2: Pet Park International…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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I know this has to do with oportunity cost and the associated risk, but I'm not sure how to make a detemrination. This is question #4 on the attachement. I alreay completed the first 3 questions.

Pet Park is trying to improve its market position with respect to dog food and would ideally like to become more competitive in this area. They have the opportunity to invest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvage value) that would reduce variable costs of manufacturing the dog food line from $21/case to $18/case. Pet Park believes that This would increase demand of their dog food to the extent that they could expect the total revenue split to be 60% (cat food) to 40% (dog food). Should they do it?

_____________________________________

Information:

Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000. Cat food sales represent 80% of the company's total revenue. Dog food sales constitute the remaining 20%. The company has provided the following information expressed on a per-case basis:

	Selling	Contribution
	Price	Margin
Cat food	$40	$16
Dog food	$30	$9

Practice 2:
Pet Park International sells cat food and dog food. Its monthly fixed costs average $620,000
Cat food sales represent 80 % of the company's total revenue. Dog food sales constitute the
remaining 20%. The company has provided the following information expressed ona per-
case basis:
Selling
Contribution
Price
Margin
$16
$9
Cat food
Dog food
$40
$30
(a) The total monthly sales revenue required to break-even is $
(Rounded)
(b) The total monthly sales revenue required to eam an operating income of $135,000 is
(c) The company's margin of safety at a monthly sales level of $2,500,000 is $
(d) Pet Park is trying to improve its market position with respect to dog food and would
ideally like to become more competitive in this area. They have the opportunity to
invest in a piece of equipment (cost: $3,000,000, useful life is 5 years with no salvage
value) that would reduce variable costs of manufacturing the dog food line from
$21/case to $18/case. Pet Park believes that This would increase demand of their dog
food to the extent that they could expect the total revenue split to be 60 % ( cat food) to
40% (dog food). Should they do it?

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