How many boxes must be sold to break even

Question

Sweet Sue, Inc., produces a particularly rich praline fudge. Each 10-ounce box sells for $5.50. Variable unit costs are as follows:

                        Pecans                                        $0.75

                        Sugar                                            0.35

                        Butter                                           1.75

                        Other ingredients                         0.24

                        Box, packing material                  0.76

                        Selling commission                      0.55

Fixed overhead cost is $24,000 per year. Fixed selling and administrative costs are $9,000 per year. Sweet Sue 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 Sweet Sue's operating income last year?
4. What was the margin of safety?
5. Suppose that Sweet Sue, Inc., raises the price to $6.00 per box, but anticipated sales will drop to 31,500 boxes. What will the new break-even point in units be? Should Sweet Sue raise the price? Explain.