10 Nov The Hamilton Flour Company is currently operating
The Hamilton Flour Company is currently operating its mill six days a week, 24 hours a day, on three shifts. At current prices, the company could easily obtain a sufficient volume of sales to take the entire output of a seventh day of operation each week. The mill’s practical capacity is 6,000 hundredweight of flour per day. Note that Flour sells for $12.40 a hundredweight (cwt.) and the price of wheat is $4.34 a bushel. About 2.35 bushels of wheat are required per cwt. of flour. Fixed costs now average $4,200 a day, or $0.70 per cwt. The average variable cost of mill operation, almost entirely wages, is $0.34 per cwt. With Sunday operation, wages would be doubled for Sunday work, which would bring the variable cost of Sunday operation to $0.66 per cwt. Total fixed costs per week would increase by $420 (or $29,820) if the mill were to operate on Sunday.(a) Using the information provided, compute the break-even volumes for sixday and seven-day operation.(b) What are the marginal contribution rates for six-day and seven-day operation?(c) Compute the average total cost per cwt. for six-day operation and the net profit margin per cwt. before taxes.(d) Would it be economical for the mill to operate on Sundays? (Justify your answer numerically.)
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