All-Day Candy Company is a wholesale distributor of candy. The company services grocery, convenience, and drug stores in a large metropolitan area. Small but steady growth in sales has been achieved by the All-Day Candy Company over the past few years, but candy costs also have been increasing. The company is reformulating its plans for the coming fiscal year. The following data were used to estimate the current year’s after-tax income of $110,400.
Average selling price ....... $4.00 per box
Average variable costs
Cost of candy .......... $2.00 per box
Selling costs .......... 0.40 per box
Total ............. $ 2.40 per box
Annual fixed costs
Selling ............ $160,000
Administrative .......... 280,000
Total .............. $440,000
Expected annual sales (390,000 boxes) = $1,560,000
Tax rate = 40%
Candy manufacturers have announced that they will increase prices of their products an average of 15% in the coming year because of increases in raw material (sugar, cocoa, peanuts, and so on) and labor costs. All-Day Candy Company expects that all other costs will remain the same as during the current year.
A. What is All-Day Candy Company’s breakeven point in boxes of candy for the current year?
B. What average selling price per box must All-Day Candy Company charge to cover the 15% increase in the variable cost of candy and still maintain the current contribution margin ratio?
C. What volume of sales in dollars must the All-Day Candy Company achieve in the coming year to maintain the same after-tax income as estimated for the current year if the average selling price of candy remains at $4 per box and the cost of candy increases 15%?