Cari Tank (CT) produces and sells water tanks for the Regional market. The following are estimates relating to its 2020 budget: Selling Price-- -$1000 Variable cost per Tank-- -$500 Fixed annual cost--- --$150000 Nett Profit (After tax)-- --$300000 Income tax rate------ -25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 350 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $100. This reduction in selling price will allow 1000 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct material. Also, the selling price will be reduced by $150 and the expected sales for the balance of the year is 1200 units. c) The fixed cost would be reduced by$15000 and the selling price by 5%. Variable cost will remain unchanged and 1100 units are expected to be sold for the balance of the year. Required: 1) Assume that no changes are made to the selling price or costs, calculate the amount of units that CariTank must sell: i) To breakeven ii) To attain the estimated net profit 2) Determine the altemative that CariTank should select to achieve its Net profit goal. 3) Explain cost-volume-profit analysis using the data in this question?
Cari Tank (CT) produces and sells water tanks for the Regional market. The following are estimates relating to its 2020 budget: Selling Price-- -$1000 Variable cost per Tank-- -$500 Fixed annual cost--- --$150000 Nett Profit (After tax)-- --$300000 Income tax rate------ -25% The mid-year review of the income statement revealed that sales were not at the expected level. For the six months of the year to June 2020, 350 units were sold at the estimated selling price with variable cost as planned. However, the net profit projection for 2020 would not be achieved unless management decisions are made. The following mutually exclusive alternatives were presented to management: a) The selling price should be reduced by $100. This reduction in selling price will allow 1000 units to be sold for the balance of the year. The budgeted fixed cost and variable cost per unit will remain unchanged. b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct material. Also, the selling price will be reduced by $150 and the expected sales for the balance of the year is 1200 units. c) The fixed cost would be reduced by$15000 and the selling price by 5%. Variable cost will remain unchanged and 1100 units are expected to be sold for the balance of the year. Required: 1) Assume that no changes are made to the selling price or costs, calculate the amount of units that CariTank must sell: i) To breakeven ii) To attain the estimated net profit 2) Determine the altemative that CariTank should select to achieve its Net profit goal. 3) Explain cost-volume-profit analysis using the data in this question?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Answer all question
Transcribed Image Text:Cari Tank (CT) produces and sells water tanks for the Regional market.
The following are estimates relating to its 2020 budget:
Selling Price---
-$1000
Variable cost per Tank-
-$500
Fixed annual cot-
-$150000
Nett Profit (After tax)-
-$300000
Income tax rate----
-25%
The mid-year review of the income statement revealed that sales were not at the expected level.
For the six months of the year to June 2020, 350 units were sold at the estimated selling price
with variable cost as planned. However, the net profit projection for 2020 would not be
achieved unless management decisions are made. The following mutually exclusive
alternatives were presented to management:
a) The selling price should be reduced by $100. This reduction in selling price will allow
1000 units to be sold for the balance of the year. The budgeted fixed cost and variable
cost per unit will remain unchanged.
b) The variable cost per unit will be reduced by $25 by sourcing less expensive direct
material. Also, the selling price will be reduced by $150 and the expected sales for the
balance of the year is 1200 units.
c) The fixed cost would be reduced by$15000 and the selling price by 5%. Variable cost
will remain unchanged and 1100 units are expected to be sold for the balance of the
year.
Required:
1) Assume that no changes are made to the selling price or costs, calculate the amount of units
that CariTank must sell:
i) To breakeven
ii) To attain the estimated net profit
2) Determine the altemative that CariTank should select to achieve its Net profit goal.
3) Explain cost-volume-profit analysis using the data in this question?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 4 steps with 1 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education