Question
Yummy Juice Ltd sells bottles of freshly squeezed juice to small convenience stores throughout Melbourne. Its latest income statement for the last 12 months is
Yummy Juice Ltd sells bottles of freshly squeezed juice to small convenience stores throughout Melbourne. Its latest income statement for the last 12 months is as follows:
Yummy Juice Ltd
Income statement
Sales (100,000 bottles X $6)
$600,000
Less:Cost of sales:
Direct materials (100,000 X $2.00)
$200,000
Direct Labours (100,000 X $1.50)
150,000
Variable overhead (100,000 X $0.50)
50,000
400,000
Gross profit
$200,000
Less:Other expenses
Fixed Advertising expenses
$10,000
Manager's salary
50,000
Fixed Occupancy and admin expenses
20,000
$80,000
Profit
$120,000
Required
a)Calculate the contribution margin per juice bottle.
b)Calculate the number of juice bottles to break even in both units and salesdollars.
c)The company expects to sell 115000 units in the coming year. How much profit will the business make for the year if its estimated level of activity is accurate?
d)It is predicted that the fixed occupancy and admin expenses will increase to $100,000. Direct materials per unit will also increase to $3.5 per unit. As a result, the selling price will increase to $9 per unit. How many bottles of juice Yummy Juice Ltd will have to sell to be able to achieve the same level of profit in part c. Comments on the outcome of the change.
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