Fred is thinking of entering the soft drinks market in the area surrounding his cottage. He is going to call his company “Pop’s Pop.” He realizes that the soft drink industry is dominated by only three companies that keep the competition out by spending a great deal on advertising. Nonetheless, Fred is tempted by the high profit margin. He plans to sell his cola for a dollar per bottle. Variable costs are $0.20 per bottle. His fixed costs are estimated at $100,000. He currently has the capacity to make and sell 200,000 bottles in a summer. In order to justify spending his time on this venture, rather than sitting on his dock, Fred needs to have an operating income of $15,000.
a) What is Fred’s break even in units?
b) How many bottles must Fred sell to achieve his target income of $15,000?
c) Is Fred’s plan feasible?