Edward Food Processing Company is a wholesale distributor of biscuits in Holborn. The Company has achieved steady growth over the past few years while Biscuit prices have been on the increase. The Company is planning its budget for the next financial year. Presented below are the data used to project the current year’s aftertax income of £110,400. £ Average Sales Price per Box 4.00 Average variable costs per Box Cost of Biscuits 2.00 Profit on sale 0.40 Total 2.40 Annual fixed cost Selling 160,000 Administrative 280,000 Total 440.000 Expected annual sales volume (390,000 boxes) £1,560,000 Tax rate 20% Biscuit manufacturers have announced that they will increase prices of their products by an average of 15% in the coming year due to increase in material and labour costs. Edward Food Processing expects same rates or levels as the current year Required: (b) Calculate the Sales price per box that the company must charge to cover the 15% increase in the costs of biscuits and still maintain the current contribution margin ratio. (c) Determine the Volume of sales the company must achieve in the coming year to maintain the same net income as projected for the current year if the sales price of biscuits remains at £4 per box and the cost of biscuits increases by 15%
Edward Food Processing Company is a wholesale distributor of biscuits in Holborn.
The Company has achieved steady growth over the past few years while Biscuit
prices have been on the increase. The Company is planning its budget for the next
financial year. Presented below are the data used to project the current year’s aftertax income of £110,400.
£
Average Sales Price per Box 4.00
Average variable costs per Box
Cost of Biscuits 2.00
Profit on sale 0.40
Total 2.40
Annual fixed cost
Selling 160,000
Administrative 280,000
Total 440.000
Expected annual sales volume
(390,000 boxes) £1,560,000
Tax rate 20%
Biscuit manufacturers have announced that they will increase prices of their
products by an average of 15% in the coming year due to increase in material and
labour costs. Edward Food Processing expects same rates or levels as the current
year
Required:
(b) Calculate the Sales price per box that the company must charge to cover the
15% increase in the costs of biscuits and still maintain the current contribution
margin ratio.
(c) Determine the Volume of sales the company must achieve in the coming
year to maintain the same net income as projected for the current year
if the sales price of biscuits remains at £4 per box and the cost of
biscuits increases by 15%
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