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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text: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.
P40 per box
Average selling price
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?
4. If the candy costs remain constant but the selling price increases by 15%, what
will be the breakeven point in peso sales?
5. If net income after taxes is to remain the same after the cost of candy increases
but no increase in the sales price is made, how many boxes of candy must
Candyman sell?
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