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CVP Analysis and Special Decisions

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CVP Analysis and Special Decisions;CVP Analysis and Special Decisions;Sweet Grove Citrus Company buys a variety of citrus fruit from growers and then processes the fruit into a product line of fresh fruit, juices, and fruit flavorings. The most recent year's sales revenue was $4,200,000. Variable costs were 60 percent of sales and fixed costs totaled $1,300,000. Sweet Grove is evaluating two alternatives designed to enhance profitability.;One staff member has proposed that Sweet Grove purchase more automated processing equipment. This strategy would increase fixed costs by $300,000 but decrease variable costs to 54 percent of sales.;Another staff member has suggested that Sweet Grove rely more on outsourcing for fruit processing. This would reduce fixed costs by $300,000 but increase variable costs to 65 percent of sales.;Round your answers to the nearest whole number.;(a) What is the current break-even point in sales dollars?;$Answer;(b) Assuming an income tax rate of 34 percent, what dollar sales volume is currently required to obtain an after-tax profit of $500,000?;$Answer;(c) In the absence of income taxes, at what sales volume will both alternatives (automation and outsourcing) provide the same profit?;$Answer;(d) Briefly describe one strength and one weakness of both the automation and the outsourcing alternatives.;Automation has less risk and a lower break-even point.Outsourcing has higher profits if sales increase.Automation has higher profits if sales increase. Outsourcing has less risk and a lower break-even point.Automation has less risk. Outsourcing has higher profits if sales increase and a lower break-even point. Automation has higher profits if sales increase and a lower break-even point. Outsourcing has less risk.

 

Paper#28406 | Written in 18-Jul-2015

Price : $37
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