CONTRIBUTION MARGIN, COST-VOLUME-PROFIT, MARGIN OF SAFETY Candyland Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for

$5.60. Variable unit costs are as follows:

Pecans $0.70 Sugar 0.35 Butter 1.85 Other ingredients 0.34 Box, packing material 0.76 Selling commission 0.20 Fixed overhead cost is $32,300 per year. Fixed selling and administrative costs are

$12,500 per year. Candyland sold 35,000 boxes last year.

Required:

. What is the contribution margin per unit for a box of praline fudge? What is the contribution margin ratio?

. How many boxes must be sold to break even? What is the break-even sales revenue?

. What was Candyland’s operating income last year?

. What was the margin of safety?

. Suppose that Candyland Inc. raises the price to $6.20 per box but anticipates a sales drop to 31,500 boxes. What will be the new break-even point in units? Should Candyland raise the price? Explain.

Problem