CVP Analysis and Special DecisionsSweet Grove Citrus Company buys a variety of citrus fruit...

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Accounting

CVP Analysis and Special Decisions
Sweet Grove Citrus Company buys a variety of citrus fruit fromgrowers and then processes the fruit into a product line of freshfruit, juices, and fruit flavorings. The most recent year's salesrevenue was $4,200,000. Variable costs were 60 percent of sales andfixed costs totaled $1,400,000. Sweet Grove is evaluating twoalternatives designed to enhance profitability.
One staff member has proposed that Sweet Grove purchase moreautomated processing equipment. This strategy would increase fixedcosts by $300,000 but decrease variable costs to 54 percent ofsales.
Another staff member has suggested that Sweet Grove rely more onoutsourcing 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 38 percent, what dollar salesvolume is currently required to obtain an after-tax profit of$300,000?
$Answer

(c) In the absence of income taxes, at what sales volume will bothalternatives (automation and outsourcing) provide the sameprofit?
$Answer

(d) Briefly describe one strength and one weakness of both theautomation and the outsourcing alternatives.
Automation has higher profits if sales increase. Outsourcing hasless risk and a lower break-even point.
Automation has higher profits if sales increase and a lowerbreak-even point. Outsourcing has less risk.
Automation has less risk and a lower break-even point.Outsourcing has higher profits if sales increase.
Automation has less risk. Outsourcing has higher profits ifsales increase and a lower break-even point.

Answer & Explanation Solved by verified expert

3.9 Ratings (710 Votes)

Answer 1 sales revenue 4200000 Less variable cost 60 of sales 2520000 contribution margin 1680000 Less fixed cost 1400000 Profit 280000 Contribution margin ratio contribution margin sales revenue 40 current breakeven point in sales dollars fixed costContribution See Answer

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In: AccountingCVP Analysis and Special DecisionsSweet Grove Citrus Company buys a variety of citrus fruit from...CVP Analysis and Special DecisionsSweet Grove Citrus Company buys a variety of citrus fruit fromgrowers and then processes the fruit into a product line of freshfruit, juices, and fruit flavorings. The most recent year's salesrevenue was $4,200,000. Variable costs were 60 percent of sales andfixed costs totaled $1,400,000. Sweet Grove is evaluating twoalternatives designed to enhance profitability.One staff member has proposed that Sweet Grove purchase moreautomated processing equipment. This strategy would increase fixedcosts by $300,000 but decrease variable costs to 54 percent ofsales.Another staff member has suggested that Sweet Grove rely more onoutsourcing 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 38 percent, what dollar salesvolume is currently required to obtain an after-tax profit of$300,000?$Answer(c) In the absence of income taxes, at what sales volume will bothalternatives (automation and outsourcing) provide the sameprofit?$Answer(d) Briefly describe one strength and one weakness of both theautomation and the outsourcing alternatives.Automation has higher profits if sales increase. Outsourcing hasless risk and a lower break-even point.Automation has higher profits if sales increase and a lowerbreak-even point. Outsourcing has less risk.Automation has less risk and a lower break-even point.Outsourcing has higher profits if sales increase.Automation has less risk. Outsourcing has higher profits ifsales increase and a lower break-even point.