1. What is Friendly Candy Company’s break-even point in boxes of candy for the current year?

2. What selling price per box must Friendly charge to cover the 15 percent increase in the cost of candy and still maintain the current contribution margin ratio?

3. What volume of sales in dollars must Friendly achieve in the coming year to maintain the same net income after taxes as projected for the current year if the selling price of candy remains at $5 per box and the cost of candy increases 15 percent?

4. What strategies might Friendly use to maintain the same net income after taxes as projected for the current year?

Effects of Changes in Costs, Including Tax Effects Friendly Candy Company is a wholesale distributor of candy. The company services grocery, convenience, and drug stores in a large metropolitan area.
Small but steady growth in sales has been achieved by the Friendly Candy Company over the past few years, while candy prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to project the current year’s after-tax net income of $138,000.
Average selling price per box .........................................    $ 5.00
Average variable costs per box:
Cost of candy ....................................................................    $ 2.50
Selling expenses ...............................................................       0.50
Total ...................................................................................    $ 3.00
Annual fixed costs
Selling ..............................................................................$ 200,000
Administrative ...................................................................350,000
Total .................................................................................$ 550,000
Expected annual sales volume (390,000 boxes) ......$1,950,000
Tax rate ...................................................................................40%
Manufacturers of candy have announced that they will increase prices of their products an average of 15 percent in the coming year, owing to increases in raw material (sugar, cocoa, peanuts, etc.) and labour costs. Friendly Candy Company expects that all other costs will remain at the same rates or levels as in the current year.