Problem 1: Candyman Company is a wholesale distributor of candy. The company services grocery stores, convenience stores, and drug stores in Metro Manila. Small but steady growth in sales has been achieved by the company over the past few years while candy prices have been increasing. The company is preparing its plans for the coming fiscal year. Presented below are the data used to project the current year's after-tax net income of P1,104,000. Manufacturers of candy have announced that they will increase prices of their products at an average of 15% in the coming year due to increases in raw materials (sugar, cocoa, peanuts, etc.) and labor costs. Candyman Company expects that all other costs will remain at the same rates or levels as the current year. Candyman is subject to a 30% income tax rate. Average selling price P40 per box Average variable costs Cost of candy Selling expenses Annual fixed costs Selling expenses Administrative Expected annual sales volume 390,000 boxes P20 per box P4 per box P1,690,000 P2,800,000 P15,600,000 Required: 1. What is the break-even point in units before a 15% increase in prices? 2. If the current contribution margin ratio is maintained, what would be the selling price of the candy to cover the 15% increase in variable costs? 3. If candy costs increase 15% but the selling price remains at P40 per box, what will be the breakeven point in units?
Problem 1: Candyman Company is a wholesale distributor of candy. The company services grocery stores, convenience stores, and drug stores in Metro Manila. Small but steady growth in sales has been achieved by the company over the past few years while candy prices have been increasing. The company is preparing its plans for the coming fiscal year. Presented below are the data used to project the current year's after-tax net income of P1,104,000. Manufacturers of candy have announced that they will increase prices of their products at an average of 15% in the coming year due to increases in raw materials (sugar, cocoa, peanuts, etc.) and labor costs. Candyman Company expects that all other costs will remain at the same rates or levels as the current year. Candyman is subject to a 30% income tax rate. Average selling price P40 per box Average variable costs Cost of candy Selling expenses Annual fixed costs Selling expenses Administrative Expected annual sales volume 390,000 boxes P20 per box P4 per box P1,690,000 P2,800,000 P15,600,000 Required: 1. What is the break-even point in units before a 15% increase in prices? 2. If the current contribution margin ratio is maintained, what would be the selling price of the candy to cover the 15% increase in variable costs? 3. If candy costs increase 15% but the selling price remains at P40 per box, what will be the breakeven point in units?
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter5: Income Statement: Reporting The Results Of Operating Activities
Section: Chapter Questions
Problem 31P
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