Break-even analysis, what-if analysis The Flerschel Candy Company produces LO 5, 6 a single product—a chocolate almond bar which sells for $0.40 per bar. The flexible costs for each bar (sugar, chocolate, almonds, wrapper, and labor) total $0.25. The total monthly capacity-related costs are $60,000. During March 2000, bar sales reached 1 million. However, the president of Herschel Candy Company was not satisfied with its performance and is considering the follow¬ ing options to increase the company's profitability:

(a) Increase advertising

(b) Increase the quality of the bar's ingredients and simultaneously increase the selling price

(c) Increase the selling price with no change in ingredients.

REQUIRED

(a) The sales manager is confident that an intensive advertising campaign will double sales volume. If the company president's goal is to increase this month's profits by 50% over last month's, what is the maximum amount that can be spent on advertising that doubles sales volume?

(b) Assume that the company increases the quality of its ingredients, thus in¬ creasing flexible costs to $0.30 per bar. By how much must the selling price be increased to maintain the same break-even point?

(c) Assume next that the company has decided to increase its selling price to $0.50 per bar with no change in advertising or ingredients. Compute the sales volume in units that would be needed at the new price for the com¬ pany to earn the same profit as in March 2000.

(LO 8)