Break$-$Even in Units, After$-$Tax Target Income, CVP Assumptions

Campbell Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchases as well as repiacement canopies. Campbell developed its business plan for the year based on the assumption that canopies would sell at a price of $$400$ each. The variable costs for each canopy wer projected at $$200,$ and the annual fixed costs were budgeted at $$120,000.$ Campbell's after$-$tax profit objective was $$231,000$; the company's effective tax rate is $40$ percent.

While Campbell's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months af the year, only $350$ units had been sold at the established price, with variable costs as planned, and it was clear that the after$-$tax profit projection for the year would not be reacht unless some actions were taken. Campbell's president assigned a management committee to analyze the situation and develop several alternative courses of action. The following mutually exclusive alternatives, labeled A$,$ B$,$ and C$,$ were presented to the president:

A$.$ Lower the variable costs per unit by $$25$ through the use of less expensive materials and slightly modified manufacturing techniques. The sales price will also be reduced by $$30,$ and sales of $2,200$ units for the remainder of the year are forecast.

B$.$ Reduce the sales price by $$40.$ The sales organization forecasts that with the significantly reduced sales price, $2,800$ units can be sold during the remainder of the year. Totic fixed and variable unit costs will stay as budgeted.

C$.$ Cut fixed costs by $$10,000,$ and lower the sales price by $5$ percent. Variable costs per unit will be unchanged. Sales of $2,000$ units are expected for the remainder of the vea

Required:

Determine the number of units that Campbell Company must sell in order to break even assuming no changes are made to the selling prich and cost structure. units

Determine the number of units that Campbell Company must sell in order to achieve its after$-$tax profit objective.

units

Determine which one of the alternatives Campbell Company should select to achieve its annual after$-$tax profit objective

Be sure to support your selection with appropriate calculations.

After$-$tax profit

Alternative A

Alternative B

Alternative C