X-Cee-Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 21,000 pairs of cross-country skis of the mountaineering model or the touring model. The Sales Department assures management that it can sell between 9,000 and 14,000 pairs of either product this year. Because the models are very similar, X-Cee-Ski will produce only one of the two models.
The following information was compiled by the Accounting Department:
Per-Unit (Pair) Data
Mountaineering Touring
Selling price $180 $120
Variable costs 130 90
Fixed costs will total $320,000 if the mountaineering model is produced but will be only $220,000 if the touring model is produced. X-Cee-Ski is subject to a 40 percent income tax rate.
Required:
1. If X-Cee-Ski Company desires an after-tax net income of $48,000, how many pairs of touring model skis will the company have to sell?
pairs of touring skis
2. Suppose that X-Cee-Ski Company decided to produce only one model of skis. What is the total sales revenue at which X-Cee-Ski Company would make the same profit or loss regardless of the ski model it decided to produce?
$
3. If the Sales Department could guarantee the annual sale of 12,000 pairs of either model, which model would the company produce? (CMA adapted)
Mountaineering model
Feedback
1. See Cornerstone 16.4.
2. Determine operating income formulas for each ski model, set them equal to one another and solve for X (units)
3. Use the number of pairs given for X in the operating income formula for each model