Question: Contribution Margin, Cost-Volume-Profit, Margin of Safety Candyland Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows: 51 Contribution Margin, Cost-Volume-Profit, Margin of Safety Candyland Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows:
Peacans $0.70
Sugar 0.35
Buffer 1.85
Other ingredients 0.34
Box, packing material 0.76
Selling commission 0.20
Fixed overhead cost is $32,300 per year. Fixed selling and administrative costs are $12,500 per year. Candyland sold 35,000 boxes last year.
Required: 1. What is the contribution margin per unit for a box of praline fudge? What is the contribution margin ratio?
2. How many boxes must be sold to break even? What is the break-even sales revenue?
3. What was Candyland's operating income last year?
4. What was the margin of safety?
5. Conceptual Connection: Suppose that Candyland Inc. raises the price to $6.20 per box but anticipates a sales drop to 31,500 boxes. What will be the new break-even point in units? Should Candyland raise the price? Explain.