CVP Analysis and Special Decisions Smoothie Company produces fruit purees which it sells to smoothie bars and health clubs. Assume the most recent year's sales revenue was $5,800,000. Variable costs were 55% of sales and fixed costs totaled $1,560,000. Smoothie is evaluating two alternatives designed to enhance profitability. • One staff member has proposed that Smoothie purchase more automated processing equipment. This strategy would increase fixed costs by $250,000 but decrease variable costs to 50 percent of sales. • Another staff member has suggested that Smoothie rely more on outsourcing for fruit processing. This would reduce fixed costs by $250,000 but increase variable costs to 60 percent of sales. Round your answers to the nearest whole number. (a) What is the current break-even point in sales dollars? $Answer (b) Assuming an income tax rate of 20 percent, what dollar sales volume is currently required to obtain an after-tax profit of $1,000,000? $Answer (c) In the absence of income taxes, at what sales volume will both alternatives (automation and outsourcing) provide the same profit?

CVP Analysis and Special Decisions Smoothie Company produces fruit purees which it sells to smoothie bars and health clubs. Assume the most recent year's sales revenue was $5,800,000. Variable costs were 55% of sales and fixed costs totaled $1,560,000. Smoothie is evaluating two alternatives designed to enhance profitability. • One staff member has proposed that Smoothie purchase more automated processing equipment. This strategy would increase fixed costs by $250,000 but decrease variable costs to 50 percent of sales. • Another staff member has suggested that Smoothie rely more on outsourcing for fruit processing. This would reduce fixed costs by $250,000 but increase variable costs to 60 percent of sales. Round your answers to the nearest whole number. (a) What is the current break-even point in sales dollars? $Answer (b) Assuming an income tax rate of 20 percent, what dollar sales volume is currently required to obtain an after-tax profit of $1,000,000? $Answer (c) In the absence of income taxes, at what sales volume will both alternatives (automation and outsourcing) provide the same profit?

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Description: CVP Analysis and Special DecisionsSmoothie Company produces fruit purees which it sells to smoothie bars and health clubs. Assume themost recent year's sales revenue was $5,800,000. Variable costs were 55% of sales and fixed coststotaled $1,560,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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