Problem Set 2 Cari Tank (CT) produces and sells water tanks for the Regional market. The following are estimates relatin

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Problem Set 2
Cari Tank (CT) produces and sells water tanks for the Regional
market. The following are estimates relating to its 2020
budget:
Selling Price---------------------------------$1000
Variable cost per Tank---------------------$500
Fixed annual cost----------------------------$150000
Net Profit (After tax)-----------------------$300000
Income tax rate-------------------------------25%
The mid-year review of the income statement revealed that sales
were not at the expected level. For the six months of the year to
June 2020, 350 units were sold at the estimated selling price with
variable cost as planned. However, the net profit projection for
2020 would not be achieved unless management decisions are made.
The following mutually exclusive alternatives were presented to
management:
a) The selling price should be reduced by $100. This reduction
in selling price will allow 1000 units to be sold for the balance
of the year. The budgeted fixed cost and variable cost per unit
will remain unchanged.
b) The variable cost per unit will be reduced by $25 by sourcing
less expensive direct material. Also, the selling price will be
reduced by $150 and the expected sales for the balance of the year
is 1200 units.
c) The fixed cost would be reduced by$15000 and the selling
price by 5%. Variable cost will remain unchanged and 1100 units are
expected to be sold for the balance of the year.
Required:
1) Assume that no changes are made to the selling price or
costs, calculate the amount of units that CariTank must sell:
i) To breakeven
ii) To attain the estimated net profit
2) Determine the alternative that CariTank should select to
achieve its Net profit goal.
3) Explain cost-volume-profit analysis using the data in this
question?