Professional Examination Problem
Cost-Volume-Profit Analysis - Attica Candy Company
Attica Candy Company is a wholesale distributor of candy. The company services grocery, convenience, and drug stores in a large metropolitan area. Attica has achieved modest but steady growth in sales over the past few years, while candy 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.
| Average selling price |
4.00 per box |
| Average variable costs: |
|
| Cost of candy |
2.00 per box |
| Selling expenses |
0.40 per box |
|
$2.40 per box |
| Annual fixed costs: |
|
| Selling |
$160,000 |
| Administrative |
280,000 |
|
$440,000 |
|
|
| Expected annual sales volume (390,000 boxes) |
$1,560,000 |
| Tax rate |
40% |
Manufacturers of candy have announced they will increase prices of their products an average of 15 percent in the coming year due to increases in raw materials (sugar, cocoa, peanuts, etc.) and labour costs. Attica Candy Company expects all other costs will remain at the same rates or levels as the current year.
Required:
How was the $110,400 net income figure calculated?
What is Attica Candy Company's break-even in boxes of candy for the current year?
What selling price per box must Attica Candy Company charge to cover the 15 percent increase in the cost of candy and still maintain the current contribution margin ratio?
What volume of sales in dollars must Attica Candy Company achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of candy remains at $4 per box and the cost of candy increases 15 percent?
How many units would have to be sold next year to generate a net income equal to 10 percent of revenue?