Reference no: EM132756413

Question 1 - Alpine Thrills Ski Company recently expanded its manufacturing capacity. The firm will now be able to produce up to 31,000 pairs of cross-country skis of either the mountaineering model or the touring model. The sales department assures management that it can sell between 25,000 and 29,000 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.

Model Mountaineering Touring

Selling price per unit $148.00 $136.00

Variable costs per unit 87.20 87.20

Fixed costs will total $618,400 if the mountaineering model is produced but will be only $523,200 if the touring model is produced. Alpine Thrills Ski Company is subject to a 45 percent income tax rate.

Required -

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

2. If Alpine Thrills Ski Company desires an after-tax net income of $41,120, how many pairs of touring skis will the company have to sell?

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 model?

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

Question 2 - Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $1,380,000 based on a sales volume of 240,000 video disks. Disk City has been selling the disks for $20 each. The variable costs consist of the $10 unit purchase price of the disks and a handling cost of $2 per disk. Disk City's annual fixed costs are $540,000.

Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 20 percent. (Ignore income taxes.)

Required -

1. Calculate Disk City's break-even point for the current year in number of video disks.

2. What will be the company's net income for the current year if there is a 20 percent increase in projected unit sales volume?

3. What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $20?

4. In order to cover a 20 percent increase in the disk's purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year?