Question
CVP: Colourful Candy Ltd produces a brightly coloured range of large lollipops. Each lollipop sells for $5.60. Variable unit costs are as follows: Colouring Agents
CVP: Colourful Candy Ltd produces a brightly coloured range of large lollipops. Each lollipop sells for $5.60. Variable unit costs are as follows:
Colouring Agents $0.70 Sugar $0.35 Corn Syrup $1.85 Other ingredients $0.34 Packaging $0.76 Lollipop Moulds and Sticks $0.20
Fixed overhead cost is $32,300 per year. Fixed selling and administrative costs are $12,500 per year. Colourful Candy sold 35,000 lollipops last year. The tax rate is 30%. Required: a) What is the contribution margin per unit for a lollipop? What is the contribution margin ratio? b) How many lollipops must be sold to break even? What is break-even point in sales revenue? c) How many units need to be sold to make an after-tax profit of $23,520? d) What was Colourfuls operating income last year? e) Suppose that Colourful increases the price to $6.20 per lollipop but anticipates a drop in sales of 3,500 units. What will be the new break-even point in units? Colourful raise the price? Explain.
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