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Chapter 7, Problem 51P 10 Bookmarks Show all steps: ON

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Problem

Alpine Thrills Ski Company recently expanded its manufacturing capacity. The firm will now be Continue to post
able to produce up to 15,000 pairs of cross-country skis of either the mountaineering model or 20 questions remaining
the touring model. The sales department assures management that it can sell between 9,000and
13,000units 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. Snap a photo from your
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Mountaineering Touring 888-888-8888 Text me

By providing your phone number, you agree to rec

Selling price per unit $ 88.00 $80.00 a one-time automated text message with a link to
the app. Standard messaging rates may apply.

Variable casts per unit 52.80 52.80

My Textbook Solutions
Fixed costs will total $369,600 if the mountaineering model is produced but will be only $ 316,800
if the touring model is produced. Alpine Thrills Ski Company is subject to a 40 percent income tax
rate. (Round each answer to the nearest whole number.)

Required:

1. Compute the contribution-margin ratio for the touring model.

Managerial Managerial Manageria
2. If Alpine Thrills Ski Company desires an after-tax net income of $ 22.080. how many pairs of Accounting Accounting:... Accounting
9th Edition 11th Edition 7th Edition
touring skis will the company have to sell?
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3. How much would the variable cost per unit of the touring model have to change before it had
the same break-even point in units as the mountaineering mode?

4. Suppose the variable cost per unit of touring skis decreases by 10 percent. and the total fixed
cost of touring skis increases by 10percent. Compute the new break-even point.

5. Suppose management decided to produce both products. If the two models are sold in equal
proportions. and total fixed costs amount to $ 343,200, what is the firm ’s break-even point in
units?

Step-by-step solution

Step 1 of 7

Cost volume profit analysis:

Cost volume profit analysis is a method of marginal costing. It is used in making short-term
economic decisions. The operating cost is affected by changes in variable costs, fixed costs,
selling price per unit. The affect is determined using cost volume profit analysis. This analysis
assumes

• All cost as variable and fixed.

• Sale price per unit, variable cost per unit and total fixed cost as constant.

• All produced units are sold.

Break-even point:

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11/17/21, 10:35 AM Solved: Alpine Thrills Ski Company recently expanded its manufa... | Chegg.com
The level of sales at which a company earns no profit, no loss is called break-even point.
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referred as a point of sales at which the contribution is equals to the fixed cost.

Comment

Step 2 of 7

1.

Compute contribution margin ratio:

Contribution - Margin ratio

Sale price for touring model

Variable cost per unit of touring model

Contribution - margin ratio

Hence, the contribution margin ratio is 34%.

Comment

Step 3 of 7

2.

Determine units to be sold to earn an after tax net income of $22,080:

After - tax net income to be earned

Tax rate = 40%

Fixed costs

Sales in units to earn a net profit after tax

Required sales in units

Hence, the units to be sold are $13,000 to earn after tax profit of $22,080.

Comment

Step 4 of 7

3.

Determine the variable cost to be incurred for touring model in order to have the same
break – even point in units as the mountaineering model:

Variable cost for touring model at 10,500 units’ breakeven sales

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Fixed Costs
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Hence, the variable cost per unit required is $49.83.

Comment

Step 5 of 7

Working note:

Compute Break – even sales volume of mountaineering model:

Break – even sales volume

Fixed costs

Hence, the breakeven sale is 10,500 units.

Comment

Step 6 of 7

4.

Compute New Break – even point of sales volume of touring skis:

Break –even sales volume

Given fixed costs increases by 10%

New Fixed costs

Old Variable cost per unit

Given that variable cost decrease by 10%

New variable cost per unit

Break –even sales volume

Hence, the new breakeven sales are 10,730 units.

Comment

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Step 7 of 7

5.

Determine break – even of sales if sales of both products are made in equal proportion:

Break –even point

Fixed costs

Sale price of two products

Variable costs for two products

Break – even sales

Hence, the breakeven sales are 5,500 units.

Comment

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