All Day Couscous Company is a wholesale distributor of candy. The company services grocery, convenience, and drugstores in a large metropolitan area.

Small but steady growth in sales has been achieved by the All-Day Couscous Company over the past few years while candy prices have been increasing. The company is formulating its plans for the coming fiscal year July 1, 2015 to June 30, 2016. Presented below are the data used to project the current years (July 1, 2015 to June 30, 2016):

Average selling price Average variable expenses Direct materials Selling expenses Total Annual fixed expenses Selling Administrative Total Expected annual sales volume (390,000 boxes)

$4.00 $2.00 0.40 $2.40 $160,000 280,000 $440,000 $1,560,000

per box per box per box

Manufacturers of direct materials have announced that they will increase prices of their products an average of 15 percent in the coming year due to increases in materials and labor expenses. All-Day Couscous Company expects that all other expenses will remain at the same rates or levels as the current year.

REQUIRED

What is All-Day Couscous Companys breakeven point in boxes of couscous for the current year?

What selling price per box must All-Day Couscous Company charge to cover the 15 percent increase in the cost of direct materials and still maintain the current average contribution margin per box?

What volume of sales in boxes must the All-Day Couscous Company achieve in the coming year in order to maintain the same operating income ($184,000) as projected for the current year if the selling price remains at $4.00 per box and the cost of direct materials increases 15 percent?

All-Day Couscous is considering adding a new product line, Taco Couscous, to their range of products. They expect that these would sell for $6.00 for a box and would have manufacturing cost of $3.00 have selling costs of $1.00 per box. There would be no additional fixed costs. They expect that this new product would be about 10% of their sales volume in boxes in the coming year. What volume of sales in boxes of couscous and Taco must the All-Day Couscous Company achieve in the coming year to maintain the same operating income as projected for the current year if the selling price of couscous remains at $4.00 per box and the cost of direct materials increases 15 percent as in part 3? Briefly explain the reason for the difference in the total volume in parts 3 and 4.