Question

As part of Cam Bowles Soup Company, Camilla Parker-Bowles has launched a new product Camilla Water Biscuits, they are sold as Camilla Crackers in the United States. Camilla Crackers are high end crackers made with premium white flour harvested in the United Kingdom, premium butter, and British spices. The quality symbol ensures that the "water biscuits" do not break from production facility to dinner table. The crackers pair nicely with the four British Soups of Camilla's line and many of the eight other soups that make up Cam Newton's soup line.

Camilla Crackers have the following costs that are not variable: Facilities Expense = $2,680,000, Insurance Expense = $1,880,000, License, Fees and Taxes Expense = $995,000, Salaries Expense = $3,210,000.

Variable cost per unit = 55%

The selling price per unit = $37 per case

20 boxes of crackers are in one case

A. Create a basic income statement from the above information on Camilla Crackers at break-even units.

B. If the variable cost was decreased by 5% what is the new-break even amount of boxes?

C. If the fixed costs were increased by $777,777 what is the break-even amount of boxes?*

D. If the target profit was 15%. How many cases would be need to be sold to achieve their goal?*

* the unit contribution margin is the same % in parts C & D as part A.

Answer 1

(A). First, we calculate Break-Even Units

Break Even Sales = Fixed Cost / (Sales price per unit – Variable costs per unit)

= (2680000 + 1880000 +995000 + 3210000) / (37 - 37*55%)

= 8765000 / 16.65

= 526427 (Approx)

Particulars	$
Sales(526427 Units * $37)	19477799
Less: Variable Cost @55%	10712789
Contribution	8765010
Less: Fixed Cost
Facilities Expense	2680000
Insurance Expense	1880000
License, Fees and Taxes Expense	995000
Salaries Expense	3210000
Profit	10

There is a remainder 10 because BES was in decimal and converted into the nearest number.

(B) If variable cost decrease

New Variable Cost = 50% i.e. $18.5

So, New Break Even Sales = Fixed Cost / ( Sales Price Per Unit - Variable Price Per Unit)

= 8765000 / 18.5

= 4,73,784 (Approx)

(C) If the fixed cost increase

Then New Break-Even Sales = Fixed Cost / ( Sales Price Per Unit - Variable Price Per Unit)

= (87,65,000 + 7,77,777) / 16.65

= 5,73,140 Units

(D) Sales Required to achieve profit = (FIxed Cost + Desired Profit) / PV Ratio

For this PV Ratio = (Contribution/Sales)*100

= (16.65 / 37)*100

= 45%

Desired Profit = 19477799*15% = 29,21,670

Sales Required = (87,65,000 + 2921670) / .45

= $2,59,70,378