The Ozzie Chocolate Company is preparing to offer a new product in its candy off

Question

The Ozzie Chocolate Company is preparing to offer a new product in its candy offerings, the Minty Dark Chocolate Bite bar. Material costs per new candy bar are $0.20 for chocolate, $0.01 for sugar, and $0.02 for mint flavoring. Labor costs of the new product are approximately $0.12 per bar. Adding a production line devoted to the new candy will cost $250,000 per year.

(a) if the sales price is $1.25 per candy bar, how many must the company make per year in order to break even? Assume that each bar made is sold at full price.

(b) What is the company's profit or loss if they make and sell 300,000 candy bars at the $1.25 price in the first year?

Explanation / Answer

let x be the no of candy bars sold

fixed cost = 250000

variable cost = 0.2 *x + 0.01 * x + 0.02 *x + 0.12*x = 0.35 *x

for break even

sales = total costs

1.25 * x = 250000 + 0.35 *x

x = 277778 units ...........ans

b)

profit = sales - fixed cost - variable cost

= 1.25 * x - 0.35 *x - 250000

= 0.9 * x - 250000

= 0.9 * 300000 - 250000

= 20000.......ans

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