Question

Swifty snowboards converts regulat snowboards by adding outriggers and seats so that people who use wheel chairs can snowboard. the income statement for lasst yeaar in which 500 snowboards were produced and sold, appears here.
Revenue $150,000
Expenses:
Variable production costs $60,000
Fixed production costs 25,000
Variable selling and administration 10,000
Fixed selling and administration 35,000 130,000
$20.000
Income
Required:
A. What vołume of snowboards must be sold to ean pretax profits of $30,000?
B. Snowbird's supplier of snowboards is unable to ship more than 500 boards for the upcoming season. Snowbird has been paying the supplier $85 for each snowboard. (The cost of the snowboards is incłuded in variable production costs). More expensive snowboards are available from other manufacturers for conversion. If Snowbird's managers expect to sell more than 500 converted snowboards in the upcoming season, what is the most they would be willing to pay outside suppliers for each additional snowboard?
C. Suppose Snowbird pays the price you calculated in part (B) and sells an additional 200 snowboards. What is the commany's incremental profit on the 200 snowboards?

Answer 1

Answer:

A. 563 snowboards

B. $120

C. Incremental Profit:$32,000

Explanation:

Volume to meet target profit = (Target Profit + Fixed Cost) / Contribution per unit

Calculation of Contribution per unit

Revenue                                             $150,000

Less Variable Costs ;

Variable production costs                ($60,000)

Variable selling and administration  ($10,000)

Contribution                                        $80,000

Contribution per unit = $80,000 / 500 snowboards

                                   = $160

Volume to meet target profit = ($30,000 + $25,000 + $35,000) / $160

                                                = 562.50 or 563 snowboards

For the Additional Snowboats,Snowbird's managers are willing to pay a price close to cost of making the regular snowboards internally.

Cost of Making :

Variable production costs ($60,000 / 500) = $120

Total Cost                                                       = $120

Therefore, Snowbird's managers are willing to pay $120

For Incremental Profit or Loss, prepare a differential analysis for the additional 200 snowboards.

Differential analysis for the additional 200 snowboards

Sales (200 snowboards × $300)                                             $60,000

Less Incremental Production Costs ( 200 × $120)                ($24,000)

Less Incremental selling and administration (200 × $20)      ($4,000)

Incremental Profit                                                                     $32,000