CVP analysis, income taxes, sensitivity. (CMA, adapted) Almo Company manufactures and sells adjustable canopies that attach to motor homes and trailers. For its year 2008 busi¬

ness plan, Almo estimated the following:

Selling price $480 Variable cost per canopy $240 Annual fixed costs $120,000 Net (after-tax) income $288,000 Tax rate 40%

The May financial statements 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 2008 after-tax profit projection would not be reached unless some action were taken. A management committee presented the follow¬

ing mutually exclusive alternatives to the president.

1. Reduce the selling price by $48. The sales organization forecasts that, with the signifi¬

cantly reduced selling price, 2,700 units can be sold during the remainder of the year.

Total fixed and variable unit costs will stay as budgeted.

2. Lower variable costs per unit by $12 through the use of less expensive direct materials and slighdy modified manufacturing techniques. The selling price will also be reduced by $36, and sales of 2,200 units for the remainder ofthe year are forecast.

3. Cut fixed costs by $12,000 and lower the selling price by 5%. Variable costs per unit will be unchanged. Sales of 2,000 units are expected for the remainder ofthe year.

Required 1. Ifno 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 all calculations.