Snowmobile Inc. manufactures two colors of snowmobiles: Green and Red. Marketing believes that it can sell between 12,000 and 18,000 of either product during the upcoming year. Due to the overall economic slowdown, the company is preparing to produce only one model for next year. The following information has been provided by the accounting department:

Green

Selling price............... $2,250

Variable costs............. 1,350

Red

Selling price...............$2,550

Variable costs............. 1,350

For next year, fixed costs will total $9,450,000 if Green is produced and $11,640,000 if Red is produced. Plant capacity allows up to 107,800 direct manufacturing hours. Green takes 9.8 hours to produce and Red requires 11 hours. The company is subject to a 30 percent income tax rate.

Required:

1. Using break-even and margin of safety calculations, determine which model Snowmobile Inc. should produce, assuming the marketing manager believes annual demand of either model will exceed production capacity? Why?

2. If Green is chosen, determine the number of snowmobiles required to earn after-tax income of $620,000.