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 flavoring. The most recent year's sales revenue was $$4,200,000.$ Variable cost were $60\%$ of sales and fix cost totaled $$1,300,000.$ Sweet Grove is evaluating to alternatives designed to enhance profitability.

$$ One staff member has proposed that sweet Grove purchase more automated processing equipment. This strategy would increase fix cost by $$200,000$ but decrease variable costs to $54\%$ of sales

$$ Another staff member has suggested that sweet Grove rely more on outsourcing for fruit processing. This wouldreduce fix cost by $$200,000$ but increase variable costs to $65\%$ of sales.

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

$($b$)$ Assuming an income tax rate of $36$ percent, what dollar sales volume is currently required to obtain an after$-$tax profit of $$700,000?$

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

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