CVP Analysis of Alternative Products

Assume Converse, a Nike company, plans to expand its manufacturing capacity to allow up to 36,000 pairs of a new shoe product each year. Because only one product can be produced, management is deciding between the production of the Roadrunner for backpacking and the Trail Runner for exercising. A marketing analysis indicates Converse could sell between 14,400 and 24,000 pairs of either product.
The accounting department has developed the following price and cost information:

	Product
		Trail
	Roadrunner	Runner
Selling price per pair	$140	$125
Variable costs per pair	80	75
Fixed production costs	$180,000	$120,000

Additional annual facility costs, regardless of product, are estimated at $120,000. Assume Converse is subject to a 20% income tax rate.

a. Determine the number of pairs of each product that Converse must sell to obtain an after-tax profit of $60,000.

b. Determine the number of pairs of each product Converse must sell to obtain identical before-tax profit.

c. For the solution to requirement (b), calculate Converses after-tax profit or loss.

d. Which product should Converse produce if both products were guaranteed to sell at least 21,600 pairs?

e. How much would the variable costs per pair of the product not selected in requirement (d) have to fall before both products provide the same profit at sales of 21,600 pairs?