Doyle’s Candy Company is a wholesale distributor of candy. The company services

Question

Doyle’s Candy Company is a wholesale distributor of candy. The company services groceries, convenience stores and drugstores in a large metropolitan area. Small but steady growth in sales has been achieved over the past few years while candy prices have been increasing. The company is formulating I its plans for the coming fiscal year. Presented below are the data used to project the current year’s after-tax net income of $264960.

Average Selling Price $9.60 per box
Average Variable Cost:
Candy Production $4.80 per box
Selling expense .96 per box
Total $5.76 per box
Annual fixed costs:
Selling $384,000
Administrative 672,000
Total 1056000
Expected annual sales volume 390,000 boxes
Tax Rate 40%

Manufactures of candy have announced that they will increase prices of their products an average 15 percent in the coming year due to increase
In raw materials (sugar, cocoa, peanuts, etc.) and labor costs. Doyle’s candy company expects that all other costs will remain at the same rates or levels as the current year.
Required:
A. What is Doyles Candy Company’s break-even point in boxes of candy for the current year?

B. What selling price per box must Doyle’s Candy Company change to cover the 15 percent increase in variable production costs of candy
And still maintain the current contribution margin percentage?

C. What volume of sales in dollars must Doyle’s 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 $9.60 per box and the variable production costs of candy increase 15 percent?

Explanation / Answer

A. What is Doyles Candy Company’s break-even point in boxes of candy for the current year?
    Fixed Costs
    Selling                    $384,000
    Administrative       $672,000
       Total               $1,056,000

   BEP (boxes)   = Fixed Costs / Unit Contribution
                       = $1,056,000 / ($9.60 - $5.76)
                       = $1,056,000 / $3.84
                       = 275,000 boxes

B. What selling price per box must Doyle’s Candy Company change to cover the 15 percent increase in variable production costs of candy And still maintain the current contribution margin %?

Existing Contribution Margin Percentage (CMP) = $3.84 / $9.60 = 40%
Revised Variable Cost (RVC) after 15% increase in
candy production cost = ($4.80x1.15) + $0.96 = $6.48

Revised Sales(RS) - Revised Variable Cost(RVC) = 40% of Revised Sales
RS - RVC = 0.4RS
0.6RS = $6.48 Or RS = $6.48 / 0.6 = $10.80 per box

C. What volume of sales in dollars must Doyle’s 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 $9.60 per box and the variable production costs of candy increase 15 percent?

Income Statement :
Sales Revenues (390,000 x $9.70)                   $3,744,000
Less : Variable Costs (390,000 x $%.76)          $2,246,400
Contribution Margin                                       $1,497,600
Less : Fixed Costs                                        $1,056,000
     Income before taxes                                   $441,600
Less : Taxes @40%                                           $176,640
       Net income after taxes                             $264,960

Pre-tax income = Total Contribution - Total Fixed Cost
$441,600 = ($9.60 - $6.48) x no. of boxes Required to sell(X) - $1,056,000
$441,600 + $1,056,000 = $3.12 X
or X = $1,497,600 / $3.12 = 480,000 boxes

Sales in dollars to achieve same net income
after taxes =   480,000 boxes x $9.60
                 =   $4,608,000

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.