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Free CMA Exam Braindumps (page: 87)

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Austin Manufacturing, which is subject to a 40% income tax rate, had the following operating data for the period just ended.



Management plans to improve the quality of its sole product by (1) replacing a component that costs $3.50 with a higher-grade unit that costs $5.50, and (2) acquiring a $180,000 packing machine. Austin will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of $172,800 in the upcoming period, it must sell

  1. 19,300 units.
  2. 21,3l6units.
  3. 22,500 units.
  4. 23,800 units.

Answer(s): C

Explanation:

The units to be sold equal fixed costs plus the desired pretax profit, divided by the unit contribution margin. In the preceding year, the unit contribution margin was $38 ($60 price -- $22 unit VC). That amount will decrease by $2 to $36 in the upcoming year because of use of a higher-grade component. Fixed costs will increase from $504,000 to $522,000 as a result of the $18,000 ($180,000 + 10 years) increase in fixed costs attributable to depreciation on the new machine. Dividing the $172,800 of desired after- tax income by 60% (the complement of the tax rate) produces a desired before-tax income of $288,000. Hence, the breakeven point in units is 22,500 [($522,000 + $288,000) + $36].Siberian Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 15,000 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 pairs and 13,000 pairs of either product this year. Because the models are very similar, Siberian Ski will produce only one of the two models. The following information was compiled by the Accounting Department



Fixed costs will total $369,600 if the mountaineering model is produced but will be only $316,800 if the touring model is produced. Siberian Ski is subject to a 40% income tax rate.



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The total sales revenue at which Siberian Ski Company would make the same profit or loss regardless of the ski model it decided to produce is

  1. $880000
  2. $422400
  3. $924000
  4. $686.400

Answer(s): B



View Related Case Study

Siberian Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 15,000 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 pairs and 13000 pairs of either product this year. Because the models are very similar, Siberian Ski will produce only one of the two models. The following information was compiled by the Accounting Department


Fixed costs will total $369,600 if the mountaineering model is produced but will be only $316,800 if the touring model is produced. Siberian Ski is subject to a 40% income tax rate. If the Siberian Ski Company Sales Department could guarantee the annual sale of 12,000 pairs of either model, Siberian Ski would

  1. Produce 12,000 pairs of touring skis because they have a lower fixed cost.
  2. Be indifferent as to which model is sold because each model has the same variable cost per unit.
  3. Produce 12,000 pairs of mountaineering skis because they have a lower breakeven point.
  4. Produce 12,000 pairs of mountaineering skis because they are more profitable.

Answer(s): D

Explanation:

Preparing income statements determines which model will produce the greater profit at a sales level of 12,000 pairs. Thus, as indicated below, the mountaineering skis should be produced.



View Related Case Study

Siberian Ski Company recently expanded its manufacturing capacity, which will allow it to produce up to 15,000 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 pairs and 13,000 pairs of either product this year. Because the models are very similar, Siberian Ski will produce only one of the two models. The following information was compiled by the Accounting Department:


Fixed costs will total $369600 if the mountaineering model is produced but will be only $316,800 if the touring model is produced. Siberian Ski is subject to a 40% income tax rate.If Siberian Ski Company desires an after-tax net income of $24,000, how many pairs of touring model skis will the company have to sell?

  1. 13,118 pairs.
  2. 12,529 pairs.
  3. 13,853 pairs.
  4. 4,460 pairs.

Answer(s): A

Explanation:

The breakeven sales volume equals total fixed costs divided by the unit contribution margin (UCM). In the breakeven formula, the desired profit should be treated as a fixed cost. Because the UCM is stated in pretax dollars, the targeted profit must be adjusted for taxes. Hence, the targeted after-tax net income of $24,000 is equivalent to a pretax profit of $40,000 [$24,000 + (1.0-- 4 tax rate)]. The sum of the pretax profit and the fixed costs is $356,800 ($316,800 + $40,000). Consequently, the desired sales volume is 13,118 pairs of touring skis [$356,800 + ($80 price -- $52.80-unit VC)].






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