The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year: $$\begin{array} { l r }
\text { Sales (150,000 pounds of chocolate) } & \$ 60,000 \
\text { Variable expenses } & 37,500 \

\text { Contribution margin } & 22,500 \
\text { Fixed expenses } & 12,000 \
\text { Profit } & \$ 10,500
\end{array}$$ Assume that the Dark Chocolate Division is currently operating at its capacity of 200,000 pounds of chocolate. Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Dark Chocolate. Under these conditions, what amount per pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its current
Profit?

Question

The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year: $$\begin{array} { l r } 
\text { Sales (150,000 pounds of chocolate) } & \$ 60,000 \
\text { Variable expenses } & 37,500 \

\text { Contribution margin } & 22,500 \
\text { Fixed expenses } & 12,000 \
\text { Profit } & \$ 10,500
\end{array}$$ Assume that the Dark Chocolate Division is currently operating at its capacity of 200,000 pounds of chocolate. Also assume again that the Peanut Butter Division wants to purchase an additional 20,000 pounds of chocolate from Dark Chocolate. Under these conditions, what amount per pound of chocolate would Dark Chocolate have to charge Peanut Butter in order to maintain its current
Profit?

Quizplus · Accepted Answer

To maintain the current profit, Dark Chocolate must cover the variable cost per pound and the lost contribution margin per pound. The contribution margin per pound is $22,500 / 150,000 = $0.15. The variable cost per pound is $37,500 / 150,000 = $0.25. Therefore, the price per pound should be $0.15 + $0.25 = $0.40.

The Dark Chocolate Division of Yummy Snacks, Inc Assume That the Dark Chocolate Division Is Currently Operating at Following