Robbie’s Ribs has the following sales and cost information. Average number of pounds sold per year............................................................ 39,750
Average selling price per pound of ribs.................. $11.50
Variable expenses per pound:
Raw material........................................................... $3.70
Variable labor and overhead................................ $3.20
Annual fixed costs:
Production expenses............................................ $37,300
Selling & administrative expenses........................ $15,186
The company’s tax rate is 30 percent. The company’s costs have slowly been rising and profits rapidly falling. Robbie Shaw, company president, has asked your help in answering the following questions.
Required:
(a) What is the contribution margin per pound of ribs? The contribution margin ratio?
(b) What is the break-even point in pounds of ribs? In dollars?
(c) How much revenue must be generated to produce $39,974 of pretax income? How many pounds of ribs would this level of revenue represent?
(d) How much revenue must be generated to produce $24,500 of after-tax income? How many pounds of ribs would this represent?
(e) A restaurant has contacted Shaw about buying 15,000 pounds of ribs per year. Shaw has the capacity to do this, is interested in taking advantage of this opportunity, and wants to generate an after-tax profit on his total sales of $120,000. To make this profit, how much should he charge the restaurant per pound of ribs? (Round to the nearest penny.) Prepare an income statement proof of your answer.
(f) Use original data. Shaw believes that he can raise the selling price per pound of ribs by $3, but he expects this would cause a 5,000-pound decline in ribs sold. Should he make this change?
(g) Shaw wants to lease a new heavy-duty smoker; this action will cause his fixed costs to increase by $12,000 per year. If he makes this change, as well as the price change discussed in part (f), what will be his new break-even point in pounds of ribs and dollars of sales?