Question: Contribution Margin, Cost-Volume-Profit, Margin of Safety Candyland Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows: 51 Contribution Margin, Cost-Volume-Profit, Margin of Safety Candyland Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows:

Peacans                       $0.70

Sugar                            0.35

Buffer                            1.85

Other ingredients             0.34

Box, packing material        0.76

Selling commission            0.20

Fixed overhead cost is $32,300 per year. Fixed selling and administrative costs are $12,500 per year. Candyland sold 35,000 boxes last year.

Required: 1. What is the contribution margin per unit for a box of praline fudge? What is the contribution margin ratio?

2. How many boxes must be sold to break even? What is the break-even sales revenue?

3. What was Candyland's operating income last year?

4. What was the margin of safety?

5. Conceptual Connection: Suppose that Candyland Inc. raises the price to $6.20 per box but anticipates a sales drop to 31,500 boxes. What will be the new break-even point in units? Should Candyland raise the price? Explain.