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McGrew_MBA 733 Problem 16-2

McGrew_MBA 733 Problem 16-2 - coming year to maintain the...

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Trish McGrew MBA 733 Prof. Bowsher, Wk 3 Problems 16-2 January 18, 2011 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
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Unformatted text preview: 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 Trish McGrew MBA 733 Prof. Bowsher, Wk 3 Problems 16-2 January 18, 2011 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...
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