Reference no: EM132715650

Question - The following information for 2020 for Vinnie's Cream Pie Fillings is available:

Baking capacity 3,000 tonnes of filling

Tonnage sold in year 1,800

Sales $900,000

Variable costs 495,000

Contribution margin $405,000

Fixed costs

Manufacturing 90,000

Selling 112,500

Administration 45,000

Income before taxes $157,500

Income taxes @ 40% 63,000

Net income $94,500

Instructions - Consider each of the following scenarios independently:

a) Calculate the break-even volume in tonnes for the year.

b) If Vinnie expects to sell 2,100 tonnes of filling next year, calculate the expected after-taxincome, assuming costs and prices remain the same.

c) Vinnie's cousin says he can sell pie filling to a new company in a nearby city but will require Vinnie to pay $61,500 to advertise the product. In addition, Vinnie will have to pay his cousin $25 for each tonne sold. Calculate the number of tones that will have to be sold to maintain the current after-tax net income.

d) Vinnie wants to ramp up production by investing in a new machine that will cost $58,500. The benefit will be that variable costs will decrease by $25 per tonne. Calculate the new break even if the new machine is purchased.

e) Assume instead that Vinnie does not purchase the machine or begin selling in the new city. He is worried that per-tonne selling prices will decline by 10% and variable costs will increase by $40 per tonne. Calculate the sales volume in dollars needed if Vinnie is to maintain his after-tax income of $94,500.