The Caribbean Candy Company through its Caribbean Candy Division is also the sole wholesale distributor of MM candy. The company services groceries, convenience stores, and drugstores throughout the Caribbean region. Small but steady growth in sales has been achieved over the past few years while MM candy prices have been increasing. The company is formulating plans for the coming fiscal year (2021). Presented below are the data used to project the current year’s after-tax net income of USD $264,960. Average Selling Price $9.60 per box Average Variable costs Candy production $4.80 per box Selling Expense 0.96 per box Total average Variable Costs $5.76 per box Annual Fixed Costs: Selling $384,000 Administrative 672,000 Total annual Fixed Costs $1,056,000 Expected annual sales volume (boxes) 390,000 Tax rate 40% The Manufacturer of MM candy in the United States has announced that they will increase prices of their products an average 15 percent in the coming year (2021) due to increases in raw materials and labour cost. The Caribbean Candy Company expects that all other costs will remain at the same rates or levels as the current year. a. What is the Caribbean Candy company’s break even point in boxes of MM candy for the current year? b. What selling price per box must the Candy company charge to cover the 15 percent increase in variable production costs of MM candy and still maintain the current contribution margin percentage? c. What volume of sales in dollars must the 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 MM candy remains at $9.60 per box and the variable production costs of candy increase 15 percent? In the coming year (2021), the management of the Caribbean Candy Company is considering also become the sole wholesale distributor of BB Candy. BB Candy can be sold at an average price of $25 per unit. The management estimates the Total average variable cost of the BB candy will be $19 per unit. The management believes that there is sufficient excess capacity in their operations that the sale of BB candy will in no way affect the sale of MM candy and that the BB candy product can be introduced without incurring any additional fixed cost. It is estimated that in the coming year the Caribbean Candy Company will sell 450,000 boxes of MM Candy and 150,000 boxes of BB candy. d. What is the breakeven point in boxes and in revenues for the coming year at the planned sales mix? The selling price of MM candy remains at $9.60 per box and the variable production costs of candy increases by 15 percent (as in (c) above). e. If selling price of MM candy remains at $9.60 per box and the variable production costs of candy increases by 15 percent (as in (c) and (d) above). Should the Candy Company go ahead with the plan to also become the sole wholesale distributor of BB Candy? Provide supporting calculations. f. Will your answer be different if management estimates that the introduction of the BB candy will require an increase in Fixed Cost of $ 1,100,000? Provide supporting calculations.
The Caribbean Candy Company through its Caribbean Candy Division is
also the sole wholesale distributor of MM candy. The company services
groceries, convenience stores, and drugstores throughout the Caribbean
region. Small but steady growth in sales has been achieved over the past
few years while MM candy prices have been increasing. The company is
formulating plans for the coming fiscal year (2021). Presented below are the
data used to project the current year’s after-tax net income of USD
$264,960.
Average Selling Price $9.60 per box
Average Variable costs
Candy production $4.80 per box
Selling Expense 0.96 per box
Total average Variable Costs $5.76 per box
Annual Fixed Costs:
Selling $384,000
Administrative 672,000
Total annual Fixed Costs $1,056,000
Expected annual sales volume (boxes) 390,000
Tax rate 40%
The Manufacturer of MM candy in the United States has announced that
they will increase prices of their products an average 15 percent in the
coming year (2021) due to increases in raw materials and labour cost. The
Caribbean Candy Company expects that all other costs will remain at the
same rates or levels as the current year.
a. What is the Caribbean Candy company’s break even point in boxes of
MM candy for the current year?
b. What selling price per box must the Candy company charge to cover
the 15 percent increase in variable production costs of MM candy and
still maintain the current contribution margin percentage?
c. What volume of sales in dollars must the 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 MM candy remains
at $9.60 per box and the variable production costs of candy increase
15 percent?
In the coming year (2021), the management of the Caribbean Candy
Company is considering also become the sole wholesale distributor of BB
Candy. BB Candy can be sold at an average price of $25 per unit. The
management estimates the
will be $19 per unit. The management believes that there is sufficient
excess capacity in their operations that the sale of BB candy will in no
way affect the sale of MM candy and that the BB candy product can be
introduced without incurring any additional fixed cost. It is estimated that
in the coming year the Caribbean Candy Company will sell 450,000
boxes of MM Candy and 150,000 boxes of BB candy.
d. What is the breakeven point in boxes and in revenues for the coming
year at the planned sales mix? The selling price of MM candy remains
at $9.60 per box and the variable production costs of candy increases
by 15 percent (as in (c) above).
e. If selling price of MM candy remains at $9.60 per box and the variable
production costs of candy increases by 15 percent (as in (c) and (d)
above). Should the Candy Company go ahead with the plan to also
become the sole wholesale distributor of BB Candy? Provide
supporting calculations.
f. Will your answer be different if management estimates that the
introduction of the BB candy will require an increase in Fixed Cost of $
1,100,000? Provide supporting calculations.
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