Oakley Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers bot
Posted: Thu May 19, 2022 3:26 pm
Oakley Company manufactures and sells adjustable canopies that
attach to motor homes and trailers. The market covers both new
units as well as replacement canopies. Oakley developed its 20x2
business plan based on the assumption that canopies would sell at a
price of $430 each. The variable cost of each canopy is projected
at $230, and the annual fixed costs are budgeted at $103,000.
Oakley’s after-tax profit objective is $258,000, and the company’s
tax rate is 25 percent.
While Oakley’s sales usually rise during the second quarter, the
May financial statements reported that sales were not meeting
expectations. For the first five months of the year, only 380 units
had been sold at the established price, with variable costs as
planned. It was clear the 20x2 after-tax profit projection would
not be reached unless some actions were taken. Oakley’s president,
Melanie Grand, assigned a management committee to analyze the
situation and develop several alternative courses of action. The
following mutually exclusive alternatives were presented to the
president.
Required:
1. If no changes are made to the selling
price or cost structure, determine the number of units that Oakley
Company must sell
a. In order to break even.
b. To achieve its after-tax profit objective.
2. Determine which one of the alternatives
Oakley Company should select to achieve its annual after-tax profit
objective.
attach to motor homes and trailers. The market covers both new
units as well as replacement canopies. Oakley developed its 20x2
business plan based on the assumption that canopies would sell at a
price of $430 each. The variable cost of each canopy is projected
at $230, and the annual fixed costs are budgeted at $103,000.
Oakley’s after-tax profit objective is $258,000, and the company’s
tax rate is 25 percent.
While Oakley’s sales usually rise during the second quarter, the
May financial statements reported that sales were not meeting
expectations. For the first five months of the year, only 380 units
had been sold at the established price, with variable costs as
planned. It was clear the 20x2 after-tax profit projection would
not be reached unless some actions were taken. Oakley’s president,
Melanie Grand, assigned a management committee to analyze the
situation and develop several alternative courses of action. The
following mutually exclusive alternatives were presented to the
president.
Required:
1. If no changes are made to the selling
price or cost structure, determine the number of units that Oakley
Company must sell
a. In order to break even.
b. To achieve its after-tax profit objective.
2. Determine which one of the alternatives
Oakley Company should select to achieve its annual after-tax profit
objective.