All-Day Lolly Company is a wholesale distributor of confectionery. The entity services grocery and convenience stores in the metropolitan area. Small but steady growth in sales has been achieved by the All-Day Lolly Company over the past few years, but confectionery prices also have been increasing. The entity is reformulating its plans for the coming fiscal year. The following data were used to project the current year’s after-tax income of $100 400.

Confectionery manufacturers have announced that they will increase prices of their products an average of 15 per cent in the coming year because of increases in raw material (sugar, cocoa, peanuts etc.) and labour costs. All-Day Lolly Company expects that all other costs will remain the same as during the current year.

Required

(a) What is All-Day Lolly Company’s breakeven point in boxes of lollies for the current year?

(b) What average selling price per box must All-Day Lolly Company charge to cover the 15 per cent increase in the variable cost of lollies and still maintain the current contribution margin ratio?

(c) What volume of sales in dollars must the All-Day Lolly Company achieve in the coming year to maintain the same after-tax income as projected for the current year if the average selling price of lollies remains at $4 per box and the cost of confectionery increases 15 per cent?

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$4.00 per box Average selling price Average variable costs Cost of confectionery Selling costs $2.00 per box 0.40 per box $2.40 per box Total Annual fixed costs Selling $160 000 Administrative 280 000 Total $440 000 Expected annual sales (390 000 boxes) = $1 560 000 Tax rate = 40%