Question

Grosbeck Cattle Company has gathered the following informationabout operations for the past three years. Mathew Grosbeck has beenexpanding herd size and is frustrated that profits have not shownconsistent growth.

					Year 1		Year 2		Year 3
Cow herd size					120		140		180
Revenues from sale ofcalves					$102,000		$119,000		$153,000
Feed					18,000		21,000		27,000
Labor (1 cowboy per 120cows)					24,000		48,000		48,000
Cow depreciation					15,000		17,500		22,500
Bull deprciation (1 Bull per30 cows)					1,667		2,083		2,500
Medications/vaccinations					3,000		3,500		4,500
Land lease					10,000		10,000		10,000
Operating income					30,333		16,917		38,500

Below is the worksheet:

Fixed Cost (notstep)					Per Unit Cost (@ 120 cows)		Per Unit Cost (@ 140 cows)		Per Unit Cost (@ 180 cows)
fixed Cost (step)					Per Unit Cost (@ 120 cows)		Per Unit Cost (@ 140 cows)		Per Unit Cost (@ 180 cows)

Below is my calculation/workout of for theworksheet:

Less: VariableCosts
Revenues from sale ofcalves					$102,000		$119,000		$153,000
Feed					18,000		21,000		27,000
Labor (1 cowboy per 120cows)					24,000		48,000		48,000
Total variable cost					42,000		69,000		75,000
Cow herd size					120		140		180
Variable Costs per cow					350		492.86		416.67
Total Contribution					60,000		50,000		78,000
Contribution per cow					500		357		433
Less: Fixed Costs					15,000		17,500		22,500
Bull deprciation (1 Bull per30 cows)					1,667		2,083		2,500
Medications/vaccinations					3,000		3,500		4,500
Land lease					10,000		10,000		10,000
Total Fixed cost					29,667		33,083		39,500
Operating income					30,333		16,917		38,500

Above is what I worked out of a problem that was given in myclass, but I am quite confuse to the question below. I am having ahard time understanding how to answer and write a brief essay onit. Can anyone help me please?

How do the “step” costs explain the struggle to achieveconsistent growth in profits? What strategy should Mathew undertaketo maximize profit potential for his operation?