cvp analysis income taxes sensitivity cma adapted almo com 268746

CVP analysis, income taxes, sensitivity. (CMA, adapted) Almo Company manufactures and sells adjustable canopies that attach to motor homes and trailers. For its 2009 budget Almo estimates the following:

The May income statement reported that sales were not meeting expectations. For the first five months of the year, only 350 units had been sold at the established price, with variable costs as planned, and it was clear that the net income projection for 2009 would not be reached unless some actions were taken. A management committee presented the following mutually exclusive alternatives to the president

a. Reduce the selling price by $40. The sales organization forecasts that at this significantly reduced price, 2,700 units can be sold during the remainder of the year Total fixed costs and variable cost per unit will stay as budgeted.

b. Lower variable cost per unit by $10 through the use of less expensive direct materials and slightly modified manufacturing techniques. The selling price will also be reduced by $30, and sales of 2,200 units are expected for the remainder of the year

c. Reduce fixed costs by $10,000 and lower the selling price by 5%. Variable cost per unit will be unchanged. Sales of 2,000 units are expected for the remainder of the year

1. If no changes are made to the selling price or cost structure, determine the number of units that Almo Company must sell (a) to break even and (b) to achieve its net income objective.

2. Determine which alternative Almo should select to achieve its net income objective. Show you calculations.