Question

Nunn Confections is a small bakery that rents space in a neighborhood shopping mall for $30,000 a year. Utilities add another $10,000 yearly. The total staff salaries and benefits projected for next year equal $70,000. In addition, Nunn spends $1,000 on advertising and $2,500 on professional services. Other overhead expenses total $12,000.

Ms. Nunn, the company's owner, would like to make a $60,000 profit after taxes next year. The tax rate will be 25 percent. The bakery sells loaves of bread, cakes, and pies. The average variable cost of each category of items and Nunn's markup on cost is loaves of bread, $2.00 and 50 percent: cakes, $5.00 and 60 percent: pies, $6.00 and 60 percent. (Note the selling price is the average variable cost plus the markup on the variable cost.)

In past years, 50 percent of the store's sales revenue came from loaves of bread, 30 percent from cakes, and the remaining 20 percent from pies.

Required:

a) What is the contribution margin of each item?

b) What are the projected fixed costs of the company next year?

c) What is the breakeven point in units for Nunn Confections?

d) What sales dollar level will the company need to reach the target after-tax profit?

Answer 1

Nunn confecHon is a small o contribution margin for each ilem ? sales price per unit Less : variable costres unit contnbution margin PD Bread is 3 ($2) si cake 58 (155) 3 pjes. $9.6 (66) $3.6 soles Price P. U = variable cost & markup Bread = F2 + 50% - & cake = $5 + 60% = 3) Pies - $ 6 + 601 = 3 $8. $9.6. b) prolected fixed cost: Rent lotilities salary & Benefit Advertising Professional service othes overhead expense TOTOY fixed cost 30,000 10,000 70,000 1000 2500 12000 5 125 500 (Bacakoven point fixed cost mix contribution margin. $1255oot $2.12 59.198 Units

weighted Aug. mixed cm Pes Unit Bread contribution mongin PU si soles ROHO X50% weighted Aug cm. per unito. s cakes 53 30% .9 pies B36 20/ 0.72 o TOTCH = $0.5 + $0.9 + $0.72 = 152x2 2.12 709et profit = 560.000 ; TCX Rates 25%. ( 1 - TOXR ale) tory fixed cost + C Tage: Income em per unit ( -25) $ 125 500 + C 660000 212 $ 125 500 + $ 80.000 $ 2.12 96 934 units sales in dollars 1) Bpega 96934 X 50% = 48467 X 2) Cako 96934 Y 301 = 29080 x 3) ples 96934 X 20% 19387 X TOTAL $3= 145401 $8 232640 $9.60 186115 564 156