The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year:
$$\begin{array} { l r }
\text { Sales } ( 150,000 \text { pounds of raisins) } & \$ 60,000 \
\text { Variable expenses } & 37,500 \
\text { Contribution margin } & 22,500 \
\text { Fixed expenses } & 12,000 \
\text { Profit } & \$ 10,500 \

\end{array}$$
Raisin expects identical operating results this year.
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Assume that the Raisin Division is currently operating at its capacity of 150,000 pounds of raisins. Also assume that the Peanut Division wants to purchase an additional 20,000 pounds of raisins from the Raisin Division. Under these conditions, what amount per pound of raisins would the Raisin Division have to charge the Peanut Division in order to maintain its current profit?

Question

The Raisin Division of Trail Mix Foods, Incorporated had the following operating results last year:
$$\begin{array} { l r } 
\text { Sales } ( 150,000 \text { pounds of raisins) } & \$ 60,000 \
\text { Variable expenses } & 37,500 \
\text { Contribution margin } & 22,500 \
\text { Fixed expenses } & 12,000 \
\text { Profit } & \$ 10,500 \

\end{array}$$
Raisin expects identical operating results this year.
-
Assume that the Raisin Division is currently operating at its capacity of 150,000 pounds of raisins. Also assume that the Peanut Division wants to purchase an additional 20,000 pounds of raisins from the Raisin Division. Under these conditions, what amount per pound of raisins would the Raisin Division have to charge the Peanut Division in order to maintain its current profit?

Quizplus · Accepted Answer

The Raisin Division is currently operating at its capacity of 150,000 pounds of raisins. If it sells an additional 20,000 pounds of raisins to the Peanut Division, it will need to charge a price that covers its variable costs and contributes to its fixed costs. The variable cost per pound of raisins is $37,500 / 150,000 = $0.25. The contribution margin per pound of raisins is $22,500 / 150,000 = $0.15. Therefore, the Raisin Division would need to charge the Peanut Division $0.25 + $0.15 = $0.40 per pound of raisins in order to maintain its current profit.

The Raisin Division of Trail Mix Foods, Incorporated Had the Following