Smoothie Company produces fruit purees which it sells to smoothie bars and health clubs. Assume the most recent year's sales revenue was $$5,800,000.$ Variable costs were $55\%$ of sales and fixed costs totaled $$1,560,000.$ Smoothie is evaluating two alternatives designed to enhance profitability.

$$ One staff member has proposed that Smoothie purchase more automated processing equipment.

This strategy would increase fixed costs by $$250,000$ but decrease variable costs to $50\%$ of sales.

$$ Another staff member has suggested that Smoothie rely more on outsourcing for fruit processing.

This would reduce fixed costs by $$250,000$ but increase variable costs to $60\%$ of sales.

REQUIRED

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

Note: Round up to the nearest dollar, enter $$80$ for $$79\mathrm{.}2$

$Answer $1$

b$.$ What dollar sales volume is currently required to obtain a before$-$tax profit of $$1,250,000?$

Note: Round up to the nearest dollar, enter $$80$ for $$79\mathrm{.}2$

$Answer $2$

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

Answer $3$

units

d$.$ Briefly describe strengths and weaknesses of both the automation and the outsourcing alternatives.

Choose between automation and outsourcing for the below options

allows focusing on core competencies.

Answer $5$

is preferred at the current sales volume.

Answer $6$

has higher risk and a higher break$-$even point.

Answer $7$

has less risk and a lower break$-$even point.

Answer $8$

provides less control of operations.

Answer $9$

will provide higher profits if sales increase.

Answer $10$

will not have as great a potential for high profits.