CVP Analysis and Special Decisions

Sweet Grove Citrus Company buys a variety of citrus fruit from growers and then processes the fruit into a product line of fresh fruit, juices, and fruit flavorings. The most recent year's

sales revenue was $$4,200,000.$ Variable costs were $60$ percent of sales and fixed costs totaled $$1,200,000.$ Sweet Grove is evaluating two alternatives designed to enhance profitability.

$-$ One staff member has proposed that Sweet Grove purchase more automated processing equipment. This strategy would increase fixed costs by $$300,000$ but decrease variable costs to $54$ percent of sales.

$-$ Another staff member has suggested that Sweet Grove rely more on outsourcing for fruit processing. This would reduce fixed costs by $$300,000$ but increase variable costs to $65$ percent of sales.

Round your answers to the nearest whole number.

$($a$)$ What is the current break$-$even point in sales dollars?

$($b$)$ Assuming an income tax rate of $38$ percent, what dollar sales volume is currently required to obtain an after$-$tax profit of $$600,000?$

$($c$)$ In the absence of income taxes, at what sales volume will both alternatives $($automation and outsourcing$)$ provide the same profit?