THE TROPICO FRUIT COMPANY ‘The Tropico Fruit Company processed and sold packaged fresh dates to a national market through grocery ‘wholesalers. For many years the company operated on a highly seasonal basis, Dates were purchased from growers during and immediately after the harvest. Packaging was done as quickly as practicable, 0 prevent spoilage of unprocessed frit. This practice required the employment of as many as ninety women to soften, pit, and package the fruit during a three-month period. Work was carried on under very crowded conditions and frequently on an overtime bass About (wo years ago the company installed a controlled storage system which permitted the storage of fresh dates for as long as eighteen months. The storage equipment was inexpensive to operate, and the quality of the fruit was actually improved. Last year, as a result of year-round operations, the company was able to increase its sales to nearly 1,500,000 packages, employing only twenty-two women working a forty-hour week instead of the ninety packers previously required, The work of these twenty-two women consisted of dipping out a quantity of dates from the softener and passing each date individually over a pitting blade. After the pits were removed, the fruit was hand packed, weighed, and labeled. The president of the company was highly pleased with the results of ‘year= round operation because it had eliminated the many problems of seasonal and short-term employment, Moreover, supervision was facilitated, the efficiency of the plant had improved, and the sales volume in- creased ten percent, The group of women packers maintained an average output per hour of slightly more than 750 packages, and no overtime work had been necessary. Recently the president was visited by a sales representative of the company which had installed the con- trolled storage system, ‘The salesman urged the Tropico Fruit Company to purchase automatic pitting and packaging machines. These ingenious machines would do all the work heretofore done by the twenty ‘two women, Dates would flow automatically from the softener to the pitting unit, where the pits would be removed, and the fruit would then be packaged, weighed, and labeled with no handwork whatever in- volved. ‘The normal capacity of each machine was ninety-five packages per hour. The installed cost would be approximately $50,000 per machine, Although the president expressed himself as pleased with the present performance of his plant, he was nevertheless interested in the proposition as it had been pre- sented and wished to give full consideration to the possibilities involved At this point he called in his chief accountant, who suggested that a break-even chart would be an effec- tive device by which to analyze the various aspects of the problem, When asked what a break-even chart ws, the accountant stated that, in a few words, it was a graphic representation of the relationship between revenuc and expense for various levels of sales, From the following data on the current year's operation, he prepared the break-even chart shown as Figure 1: gross sales $300,000; fixed expenses, including interest, property taxes, executive salaries, depreciation, insurance, and so forth, $60,5 variable expenses, in cluding unprocessed fruit, direct labor, packing materials, freight and express, salesmen’s commissions, and so forth, $201,500, ‘The chart shows that for this year the break-even point would occur at $185,000 sales. With the fiscal year about to close, the figures provided a sufficiently accurate indication of the break-even volume, even though some estimates were madeEXPENSES 000 300 Total Sales 200 Break-even Total Costs ‘vaible Exponces 100 | Fixed Expenses +00 200: 300 Sales in Thousands of Dollars Fi ire, Break-even Chart af Operations ‘The installation of enough machines to climinate the twenty-two women packers, who were paid $1.40 per hour for a forty-hour week, would mean a weekly payroll saving of $1,232. There would be no need for the supervisor, but maintenance mechanic at practically the same payroll cost as the supervisor would be needed to repair and adjust the machines. ‘The machines would result in no other payroll savings. as the same number of truckers, shipping and receiving workers, clerks, and soon, would have to be em- ployed. Thus on a fifly weeks’ basis of operation the saving in direct labor costs would be $61,000, However, the company would have to borrow the money, for which the bank would charge five percent interest, to purchase the necessary number of machines. The yearly expense for each machine would be $6,470, including interest, depreciation, repair and replacement parts, taxes, power, and insurance. The president asked the accountant to show on the break-even chart what the results of the current year's op- erations would have been had the machines been in use, #8 Guide questions: 1. On the break-even chart, show with dotted lines the situation as requested by the president. 2. From the resultant chart, what significant facts would you point out as pertinent to the replacement of hhand operations by the automatic machines? 3. Disregarding the relative profit result as shown by the chart, what reasons might be advanced for: (a) continuing the hand-pitting and packing operations? (b) installing the automatic machines? 4. What are the limitations/shortcomings of a break-even chart that should be recognized and understood”