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CVP analysis, single constrained resources

Snowbird Snowboards converts regular snowboards by adding outriggers and seats so that people who use wheelchairs can snowboard. The income statement for last year, in which 500 snowboards were produced and sold, appears here.

Revenue 150,000
Expenses
Variable production costs 60,000
Fixed Production costs 25,000
fixed selling and administration 35,000 130,000
Income 20,000

A. What volume of snowboards must be sold to earn 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 included 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 company's incremental profit on the 200 snowboards?

Solution Summary

The solution explains some calculations using CVP analysis

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