The Acme Candy Company is preparing to offer a new product called the Minty Dark
ID: 1224759 • Letter: T
Question
The Acme Candy Company is preparing to offer a new product called the Minty Dark Chocolate Bite Bar. The material costs per unit of the new candy bar are $0.10 for chocolate, $0.02 for sugar, and $ 0.03 for mint flavoring. Labor costs are estimated to be $0.10 per unit candy bar. Building a production line facility devoted to the new candy bar will have two fixed costs: cost $150,000 paid in full at the start of candy bar production, and operating costs for the facility are estimated to be $200,000 per year. Show all work, starting with listing and labeling given information. In all calculations first show theoretical equations used, and include any assumptions made. (time value of money is not to be considered in this problem)
create a table of given information and unknowns organized and properly labeled:
If the sales price of the candy bar is set at $1.60 each, and every candy bar made is sold at that price, how many candy bars must the company make to break even at the end of the first year?
What is the company’s annual profit or loss if they make and sell 350,000 candy bars in the first year?
Explanation / Answer
Break-even point (In units) = Fixed Costs / Contribution Per Unit
Fixed Costs = 150000 + 200000 = $ 350000
Contribution Per Unit = Selling price per unit - Variable Cost per unit
= 1.60 - [0.10 + 0.02 + 0.03 + 0.10]
= 1.60 - 0.25
= $ 1.35 Per Unit
Break-even point (In units) = 350000 / 1.35 = 259259.25 Units. [Rounded off to 259260 Units.]
Conclusion:- If the sales price of the candy bar is set at $1.60 each, and every candy bar made is sold at that price, the number of candy bars that the company must make to breakeven at the end of the first year = 259260 Candy Bars.
The company’s annual profit or loss if they make and sell 350,000 candy bars in the first year:-
Profit / (Loss) = Total Contribution - Fixed Costs
= (1.35 * 350000) - 350000 [ Fixed Costs = 200000 + 150000 = $ 350000 ]
= 472500 - 350000
= $ 122500
Conclusion:- The company’s annual profit or loss if they make and sell 350,000 candy bars in the first year = $ 122500 Profit.
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