Candyland, Inc., produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows:
Pecans $0.70
Sugar $0.35
Butter $1.85
Other ingredients $0.34
Box, packing material $0.76
Selling commission $0.20
Fixed overhead cost is $32,300 per year. Fixed selling and administrative costs are $12,500 per year. Candyland sold 35,000 boxes last year.
Required
1. What is the contribution margin per unit for a box of praline fudge? What is the contribution margin ratio?
2. How many boxes must be sold to break even? What is the break-even sales revenue?
3. What was Candyland's operating income last year?
4. What was the margin of safety?
5. Suppose that Candyland, Inc., raises the price to $6.20 per box but anticipates a sales drop to 31,500 boxes. What will the new break-even point in units be? Should Candyland raise the price? Explain.