Question

Shamrock Snowboards converts regular snowboards by adding outriggers and seats so that people who use wheelchairs can snowboard. The income statement for last year, in which 520 snowboards were produced and sold, appears here: $166,400 Revenue Expenses Variable production costs Fixed production costs Variable selling and administration Fixed selling and administration Income $68,640 22,500 9,880 33,200 134,220 $ 32,180 What volume of snowboards must be sold to earn pretax profits of $28,100? (Round answers to whole amounts, e.g. 5,278.) Volume of snowboards: snowboards LINK TO TEXT Shamrock's supplier of snowboards is unable to ship more than 520 boards for the upcoming season. Shamrock has been paying the supplier $91 for each snowboard. (The cost of the snowboards is included in variable production costs.) More expensive snowboards are available from other manufacturers for conversion. If Shamrock's managers expect to sell more than 520 converted snowboards in the upcoming season, what is the most they would be willing to pay outside suppliers for each additional snowboard? Willing to pay: $

Answer 1

Contribution Margin per Snowboard = (Sales – variable costs)/Number of snowboards

= (166400-68640-9880)/520

= $169 per snowboard

Total Fixed costs = 22500+33200 = $55700

Number of snowboards required = (Pretax profit + Total fixed costs)/Contribution Margin per unit

= (28100+55700)/169

= 495.86
i.e. 496 snowboards

2.The most that will be paid = Selling price per unit – Other Variable costs since fixed costs do not change with change in production volume

Hence, most they would be willing to pay = (166400/520 – 68640/520 – 9880/520 + 91)

= 320 – 41 – 19

= $260 per snowboard

3.Incremental profit will be $0 since contribution margin is $0 from additional sales