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Question - Freshiana Ltd. is a chemical company producing and selling hand sanitizers for $12 per bottle. Each bottle of sanitizers requires a plastic bottle costing $2 and chemicals costing $6. Freshiana's fixed costs total $60 000.
Required -
a. What is the contribution margin per bottle of hand sanitizers for Freshiana?
b. How many bottles of sanitizers Freshiana has to sell to reach the break-even point?
c. How much profit Freshiana will earn at a sales volume of 25 000 bottles?
d. Freshiana's target profit for next year is $160 000. How many bottles the company must sell to earn this target profit?
e. Freshiana's total fixed cost is going to increase to $80 000 due to a rent increase. In order to cope with this increase Freshiana is considering increasing the selling price to $16. The variable cost per bottle of sanitizer would remain unchanged.
Repeat the calculations from (a) to (d) above using this new information. Are these changes going to be a good for Freshiana? Why or why not? What other factors Freshiana should consider before raising the selling price?
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