Candy Company

Topics: Variable cost, Costs, Contribution margin Pages: 1 (303 words) Published: January 23, 2011
A. What is Doyles Candy Company’s break-even point in boxes of candy for the current year?
 Fixed Costs
 Selling $384,000
 Administrative $672,000
 Total $1,056,000

 BEP (boxes) = Fixed Costs / Unit Contribution
 = $1,056,000 / ($9.60 - $5.76)
 = $1,056,000 / $3.84
 = 275,000 boxes

B. What selling price per box must Doyle’s Candy Company change to cover the 15 percent increase in variable production costs of candy And still maintain the current contribution margin %?

Existing Contribution Margin Percentage (CMP) = $3.84 / $9.60 = 40%
Revised Variable Cost (RVC) after 15% increase in
candy production cost = ($4.80x1.15) + $0.96 = $6.48

Revised Sales(RS) - Revised Variable Cost(RVC) = 40% of Revised Sales
RS - RVC = 0.4RS
0.6RS = $6.48 Or RS = $6.48 / 0.6 = $10.80 per box C. What volume of sales in dollars must Doyle’s Candy Company achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of candy remains at $9.60 per box and the variable production costs of candy increase 15 percent? Income Statement :
Sales Revenues (390,000 x $9.70) $3,744,000
Less : Variable Costs (390,000 x $%.76) $2,246,400 
Contribution Margin $1,497,600 
Less : Fixed Costs $1,056,000 
 Income before taxes $441,600 
Less : Taxes @40% $176,640 
 Net income after taxes $264,960 Pre-tax income = Total Contribution - Total Fixed Cost
$441,600 = ($9.60 - $6.48) x no. of boxes Required to sell(X) - $1,056,000
$441,600 + $1,056,000 = $3.12 X
or X = $1,497,600 / $3.12 = 480,000 boxes

Sales in dollars to achieve same net income
after taxes = 480,000 boxes x $9.60
 =...
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