Question

Problem 7-51 Cost-Volume-Profit Analysis with Income Taxes and Multiple Products (Appendix) (LO 7-1, 7- 2, 7-4, 7-5, 7-11) [The following information applies to the questions displayed below) Alpine Thrills Ski Company recently expanded its manufacturing capacity. The firm will now be able to produce up to 28,000 pairs of cross-country skis of either the mountaineering model or the touring model. The sales department assures management that it can sell between 22.000 and 26,000 units of either product this year Because the models are very similar, the company will produce only one of the two models. The following information was compiled by the accounting department Selling price per unit Variable costs per unit | Model fountaineerine $145.00 85.70 Touring $133.00 85.70 Fixed costs will total $606 400 if the mountaineering model is produced but will be only $514.200 If the touring modelis produced. Alpine Thrills Ski Company is subject to a 30 percent income tax rate! Problem 7-51 Part 2 2.1 Alpine Thrills Ski Company desires an after-tax net income of $39,620, how many pairs of touring skis will the company have to calinannt mind Intermediate Faultinne Daund te final Ancar to the nee d

Answer 1

2. Desired after tax income = $39620
Before tax income = $39620/0.70 = $56600

Number of pairs to be sold = (Fixed Cost + Desired Profit) / Contribution Margin per unit
= ($514200+56600)/47.30 = 12068 pairs

3.
Break even for Mountaineering = $606400 / 59.30 = 10226 pairs
For 10226 pairs of Touring, Variable cost has to be = 10226 x $133 - 514200 = $845858
Per unit variable cost = $845858/10226 = $82.72 per pair

Therefore variable cost per unit have to reduce by $2.98 per pair i.e. $85.70-82.72

4.
Revised Contribution Margin = $133 - $85.70 x 0.85 = $60.155
Revised Fixed Cost = $514200 x 1.15 = $591330

Break even = $591330 / 60.155 = 9831 units

5.
Weighted Contribution Margin = $59.30 x 1/2 + 47.30 x 1/2 = $53.30
Breakeven = $540800 / 53.30 = 10147 units