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Loly Corp is a company which produces sweet candies

Accounting

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Loly Corp is a company which produces sweet candies. The company predicts that it can sell 300.000 candies next year. Cost information regarding the company’s operation for next year are as follows:

Sales price per unit $ 900

VC per unit    

DM   $ 150

DL   $ 80

VFOH   $ 20

Variable G&A exp $ 100

Total FC

Total FOH $ 80.000.000

Total Fix G&A $ 15.000.000

Questions:

1. What is the company’s profit if it can sell all of the candies as predicted?

2. What is the company’s operating leverage based on the question in point 1 and what does it mean? How many units of candies that the company have to sell if it wants to reach a profit of $ 100.000.000. assume the tax rate is 20%

3. If company’s maximal capacity is only 300.000 units, therefore it plans to increase the candies sales price. What is the sales price increase so that the company still can achieve its targeted profit in point 2? (assume no tax)

4. Assume that the company also produces chocolate and the contribution margin for the chocolate is $700 per unit. If the predicted unit sales for next year will be 60% from chocolate and the rest from candies, calculate the amount of candies and chocolate that the company has to sell in order to receive a profit of $ 20.000.000 after tax (tax rate=20%)