Break even analysis
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7. Walker Corp. is a retail store that sells shoes and boots. In the past, it has bought all its shoes from a supplier for $15 per unit. However, Walker has the opportunity to acquire a small manufacturing facility where it could produce its own shoes. The projected data for producing its own shoes are as follows:
Sales price $ 25
Variable costs 5
Fixed costs 125,000
Required
1. If Walker acquired the manufacturing facility, how many shoes would it have to produce in order to break even?
2. To earn an after tax profit of $100,000, how many shoes would Walker have to sell if it buys the shoes from the supplier? If it produces its own shoes? Walker's tax rate is 35%.
3. Walker is indifferent between the two alternatives at sales of how many units (ignore income tax effects)? Show a computation of operating income to prove your answer.
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Solution Summary
Word file shows calculations of break even point ,sales required to earn an after tax profit of $100,000 and indifference point.
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