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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?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 20E: Eastman, Inc., manufactures and sells three products: R, S, and T. In January, Eastman, Inc.,...
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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?
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?
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