Great Northern Ski Company recently expanded its manufacturing capacity. The firm will now be able to produce up to 15.000 pairs of cross-country skis of either the mountaineering model or the touring model. The sales department assures management that it can cell between 9.000 and 13,000 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.

Fixed costs will total $ 554,400 if the touring model is produced but will be only $ 475,200 if the mountaineering model is produced. Great Northern 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 mountaineering model.
2. If Great Northern Ski Company desires an after-tax net income of $ 33,120, how many pairs of mountaineering skis will the company have to sell?
3. How much would the variable cost per unit of the mountaineering model have to change before it had the same break- even point in units as the touring model?
4. Suppose the variable cost per unit of mountaineering skis decreases by 10 percent, and the total fixed cost of mountaineering skis increases by 10 percent. 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 $ 514,800, what is the firm’s break- even point in units?
(CMA,adapted)

Transcribed Image Text:

Model Touring Mountaineering Selling price per unit. Variable costs per unit.. ..$132.00 79.20 $120.00 79.20