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?

b. Assuming an income tax rate of 20%, what dollar sales volume is currently required to obtain an after-tax profit of $ 1,000,000?

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

d. Briefly describe one strength and one weakness of both automation and the outsourcing alternatives.