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Cost-Volume-Profit with Income Taxes and Multiple Products

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 managements that it can sell 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 {see attachment}

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% income tax rate (round each answer to the nearest whole number).


1. Compute the contribution-margin ration 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 units 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%, and the total fixed cost of mountaineering skis increases by 10%. 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 amounts to $514,800, what is the firm's break-even point in units?

{see attachment for check point}


Solution Preview

1. Contribution Margin is the difference between the selling price and the variable cost. The calculation is in the attached file.

2. We know the after tax income..make is pre tax by dividing by (1-T). To earn this amount, we need to ...

Solution Summary

The posting has solution for the Great Northen Ski Company in calculating the net income and breakeven units