Question

Scott Confectionery sells its Stack-o-Choc candy bar for $0.60. The variable cost per unit for the candy bar is $0.34; total fixed costs are $171,000.
a. What is the contribution margin per unit for the Stack -O- Choc candy bar?

b. What is the contribution margin ratio for the Stack -O-Choc candy bar?

C. What is the breakdown point in units? In sales dollars?

D. If an increase in chocalate prices causes the variable cost per unit to increase to $0.55, what will happen to the breakeven point?

Answer 1

Answer:

(i) $0.26

(ii) 43.33%

(iii) 657,692.31 units

(iv) 3,420,000

Explanation:

Given that,

Selling price = $0.60

Variable cost per unit = $0.34

Total fixed costs = $171,000

(i) contribution margin per unit = Selling price - Variable cost per unit

                                                   = $0.60 - $0.34

                                                   = $0.26

(ii) contribution margin ratio:

= (contribution margin ÷ Selling price) × 100

= ($0.26 ÷ $0.6) × 100

= 43.33%

(iii) Break-even point in units:

= Total Fixed cost ÷ contribution margin

= (171,000 ÷  0.26)

= 657,692.31 units

(iv) If an increase in chocolate prices causes the variable cost per unit to increase to $0.55.

contribution margin per unit = Selling price - Variable cost per unit

                                                   = $0.60 - $0.55

                                                   = $0.05

New Break-even point in units:

= Total Fixed cost ÷ contribution margin

= (171,000 ÷  0.05)

= 3,420,000 units

Therefore, there is an increase in the break-even units or more units have to be sold to cover the variable and fixed cost.