Problem: Air Peanut Company manufactures and sells roasted peanuts packets to commercial airlines. Following are the price and cost data per 100 packets of peanuts:
Estimated annual sales volume = 11,535,700 packets
Selling price $35.00
Variable costs:
Raw materials $16.00
Direct labor 7.00
Manufacturing support 4.00
Selling expenses 1.60
Total variable costs per 100 pkts $28.60
Annual fixed costs:
Manufacturing support $192,000
Selling and administrative 276,000
Total fixed costs $468,000
Required to do:
Q1. Determine Air Peanut's breakeven point in units.
Q2. How many packets does Air Peanut have to sell to earn $156,000?
Q3. Air Peanut expects its direct labor costs to increase by 5% next year. How many units will it have to sell next year to break even if the selling price remains unchanged?
Q4. If Air Peanut's direct labor costs increase by 5%, what selling price per 100 packets must it charge to maintain the same contributions margin to sales ratio?