Nunn Confections is a small bakery that rents space in a neighborhood shopping mall for $30,000 a year. Utilities add another $10,000 yearly. The total staff salaries and benefits projected for next year equal $70,000. In addition, Nunn spends $1,000 on advertising and $2,500 on professional services. Other overhead expenses total $12,000.

Ms. Nunn, the company's owner, would like to make a $60,000 profit after taxes next year. The tax rate will be 25 percent. The bakery sells loaves of bread, cakes, and pies. The average variable cost of each category of items and Nunn's markup on cost is loaves of bread, $2.00 and 50 percent: cakes, $5.00 and 60 percent: pies, $6.00 and 60 percent. (Note the selling price is the average variable cost plus the markup on the variable cost.)

In past years, 50 percent of the store's sales revenue came from loaves of bread, 30 percent from cakes, and the remaining 20 percent from pies.

Required:

a) What is the contribution margin of each item?

b) What are the projected fixed costs of the company next year?

c) What is the breakeven point in units for Nunn Confections?

d) What sales dollar level will the company need to reach the target after-tax profit?

Answer rating: 100% (QA)

a Contribution Selling Price Variable cost Loaves 32 1 Cakes 8... View the full answer