Question

Question 1 – Cost Volume Profit

Treats is a producer of soft candy.

The financial details for each box are as follows:

	$
Sales Price	5.60
Sugar	0.35
Natural flavours	1.85
Other ingredients	1.04
Packaging material	0.76
Sales commission	0.20

The fixed manufacturing overhead cost for candy production is $32,300 per year

The fixed Selling and Administration costs are $12,500 per year.

Required

1. Calculate how many boxes of candy Treats must sell in a year to breakeven.
2. Calculate the amount of sales revenue that Treats would earn at breakeven point.
3. Calculate the amount of profit the business will make if it sold 35,000 boxes of candy.
4. If Candy land wants to make a profit after tax of $18,200 after tax, how many boxes of candy does it need to sell?
5. Treats is considering raising the selling price per box of candy to $6.20 but anticipates that this will cause the volume of sales to drop. Assuming that Treats is only able to sell 31,500 boxes if the price per box is increased to $6.20 calculate the net profit it could expect to earn.

Answer 1

Solution	a. Calculation of boxes of candy Treats must sell in a year to breakeven
			Per box
	Sales Price		5.60
	Less: Variable cost :
	Sugar	0.35
	Natural flavours	1.85
	Other ingredients	1.04
	Packaging material	0.76
	Sales commission	0.2	-4.20
	Contributrion per box		1.40
		Amount in $
	Fixed maufecturing overhead cost	32300
	Fixed selling and administration cost	12500
	Total fixed cost	44800
	Break even (in boxes)
	=Fixed cost/ contribution per box
	=44800/1.4
	= 32000 boxes
	b. Calculation of the amount of sales revenue that Treats would earn at breakeven point.
		Amount in $
	Break even sale (in boxes)	32000
	sale per unit	5.6
	Sales revenue	179200
	c. Calculation of the amount of profit the business will make if it sold 35,000 boxes of candy.
		Amount in $
	Contribution at 35000 boxes	49000
	(35000*1.4)
	Less: total fixed cost	-44800
	Profit on sale of 35000 boxes	4200
	d. If Candy land wants to make a profit after tax of $18,200 after tax, how many boxes of candy does it need to sell
	= (Fixed cost + profit)/contributin per box
	= (44800+18200)/1.4
	=45000 Boxes
	e. if the price per box is increased to $6.20 and sales units is 31500 boxes then the net profit it could expect to earn as follows :
		Amount in $
	Sales proceeds (31500*6.2)	195300
	Less: Variable cost (31500*4.2)	-132300
	Contribution	63000
	Less: Total fixed cost	-44800
	Net profit	18200