Problem
Alenka is a manufacturer of Russian chocolates. The company produces a variety of chocolates ranging from white chocolates to honey-filled chocolates. Alenka has achieved small but steady growth in sales over the past few years, while chocolate prices have been increasing. The company is formulating its plans for the coming fiscal year. Following is the data used to project the current year's after-tax net income of $110,400.
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Average selling price
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$4.00 per box
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Average variable cost:
Cost of chocolate
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$2.00 per box
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Selling expenses
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$0.40 per box
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Annual fixed cost:
Selling
Administrative
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$160,000
$280,000
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Expected annual sales volume (390,000 boxes)
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$1,560,000
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Tax rate
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40%
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Task
A. What is Alenka's breakeven in boxes of Chocolates for the current year?
B. What selling price per box must Alenka charge to cover the 15% increase in the cost of Chocolate and still maintain the current CM ratio?
C. What volume of sales in dollars must the Alenka achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of Chocolates remains at $4 per box and the cost of Chocolate increases 15%?
D. How many units of boxes would have to be sold next year to generate a net income equal to 10% of revenue?
E. How was the $110,400 net income figure calculated?