Bravo Company produces a chocolate almond bar.Each bar sells for $0.40.The variable costs for each bar total $0.25.The annual fixed costs are $60,000.Last year, one million bars were sold.The president of Bravo, not fully satisfied with the profit performance of the chocolate bar, was considering the following options to increase the bar's profitability: (Treat requirements a, b, c and d independently)

a. Bravo's sales price, variable costs and existing fixed costs for this year are expected to remain the same as last year. The sales manager is confident that an advertising campaign will double sales volume.If the company's president's goal is to increase this year's operating profits by 50% over last year's, what is the maximum amount that could be spent on this advertising campaign?

b. Assume that the company increases the quality of its ingredients, thus increasing variable costs to $0.30. Answer the following questions:

i.How much must the selling price be increased to maintain the same break-even point [in units]?

ii.What will the new price be if the company wants to increase the old contribution margin ratio by 50%

c. Bravo Company has decided to increase its selling price to $0.50 per bar, with variable costs per unit and total fixed costs remaining the same as last year. Compute the sales volume (in units) that would be needed at the new price for the company to earn the same operating profit as last year.

d. The sales manager is convinced that by increasing the quality of the ingredients, thus increasing variable cost to $.30, and by advertising the increased quality through spending an additional $100,000, sales volume could be doubled. Compute the selling price that would be needed to achieve the goal of increasing profits by 50%.

 

Answer rating: 100% (QA)

b Quality Improvement and Pricing Strategies i BreakEven Point with Increased Variable Costs New Variable Costs per bar 030 Fixed Costs 60000 To maintain the same breakeven point in units we use the f... View the full answer