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Breakeven in Units, After-Tax Target Income, 17-7 CVP Assumptions 01, 102, Almo Company manufactures and sells adjustablc canopics that attach to motor homcs and trailcrs.

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Breakeven in Units, After-Tax Target Income, 17-7 CVP Assumptions 01, 102, Almo Company manufactures and sells adjustablc canopics that attach to motor homcs and trailcrs. The market covers both new unit purchases as well as replacement e L05 Almo developed its 2010 business plan based on the assumption that canopies would sii at a price of $400 each. The variable costs for cach canopy were projected at S200 the annual fixed costs were budgeted at $100,000. Almo's after-tax profit $240,000; the company's effective tax rate is 40 percenc While Almo's sales usually rise during the second quarter, the May inancial state. ctations. For the first five months of the en soldlat the established price, with variable costs as planned. er-tax profit projection would not be reached unkcs ments reported that sales were not mceting expe year, only and it wasclear that the units some actions were taken. Almo's president assigned a management committee to anal/ze the situation and develop several alternative courses of action. The following munualb exclusive alternatives, labeled A, B, and C, were presented to the president. A. Reduce the sales price by $40. The sales organization forecasts that with the signf cantly reducecd sales pricts 2.700units can be sold during the remainder of the year Total fixed and variable unit costs will stay as budgeted B. "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. C. Cut fixed costs by $10,000, and lower the sales price by 5 percent. Variable costs pe unit will be unchanged. Sales of 2,000 units are expected for the remainder of the year Required: 1. Determine the number of units that Almo Company must sell in order to k even assuming no changes are made to the selling price and cost structure Determine the number of units that Almo Company must sell in its after-tax profit objective order to achieve 3. Dctermine which one of the alternatives Almo Company should select to achieve al after-tax profit objective. Be sure to support your selection with appro- nnu priate calculations 4. The precision and reliability of CVP analysis are limited by several underlying assumptions. Identity at least four of these assumptions. (CMA adaped)

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