The Dark Chocolate Division of Yummy Snacks, Inc. had the following operating results last year: $\begin{array}{lr}
\text { Sales }(150,000 \text { pounds of chocolate) } & \$ 60,000 \
\text { Variable expenses } & 37,500 \
\text { Contribution margin } & 22,500 \
\text { Fixed expenses } & 12,000 \
\text { Profit } & \$ 10,500
\end{array}$ Assume that the Dark Chocolate Division is currently operating at its capacity of 150,000 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?
A) $0.40 per pound
B) $0.08 per pound
C) $0.15 per pound
D) $0.25 per pound
E) $0.30 per pound

Question

Quizplus · Accepted Answer

The correct answer is A.The Dark Chocolate Division is currently operating at its capacity of 150,000 pounds of chocolate. If it sells an additional 20,000 pounds of chocolate to the Peanut Butter Division, it will need to charge a price that will cover its variable costs and contribute to its fixed costs. The variable cost per pound of chocolate is $37,500 / 150,000 = $0.25. The fixed costs are $12,000. The contribution margin per pound of chocolate is $22,500 / 150,000 = $0.15. Therefore, the Dark Chocolate Division will need to charge the Peanut Butter Division a price of $0.25 + $0.15 = $0.40 per pound in order to maintain its current profit.

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