Sitaram Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchasers as well as replacement canopies. Sitaram developed its 2019 business plan based on the assumption that canopies would sell at a price of ₹400 each. The variable costs for each canopy were projected to be ₹200, and the annual fixed costs were budgeted at ₹100,000. The goal for Sitaram's after-tax operating profits was ₹240,000; the company's effective tax rate is 40%. While Sitaram's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of 2019, only 350 units had been sold at the established price, with variable costs as planned. It was clear that the 2019 after-tax operating profit goal would not be reached unless some corrective actions were taken. Sitaram's president assigned a management committee to analyse the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president A. Reduce the selling price by ₹40. The sales organization forecasts that with the significantly reduced sales price, 2,700 units could be sold during the remainder of the year. Total fixed costs per annum and variable costs per unit will stay as budgeted. B. Lower the variable costs per unit by ₹25 through the use of less expensive materials and slightly modified manufacturing technique. The sales price will also be reduced by ₹30 and sales of 2,200 units for the remainder of the year are forecast. C. Cut fixed costs by ₹10,000 and lower the selling price by 5 percent. Variable costs per unit will be unchanged. Sales of 2,000 units would be expected for the remainder of the year. Determine the number of units that Sitaram Company must sell in order to break even, assuming no changes are made to the selling price and cost structure. 400 450 500 550

Sitaram Company manufactures and sells adjustable canopies that attach to motor homes and trailers. The market covers both new unit purchasers as well as replacement canopies. Sitaram developed its 2019 business plan based on the assumption that canopies would sell at a price of ₹400 each. The variable costs for each canopy were projected to be ₹200, and the annual fixed costs were budgeted at ₹100,000. The goal for Sitaram's after-tax operating profits was ₹240,000; the company's effective tax rate is 40%. While Sitaram's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of 2019, only 350 units had been sold at the established price, with variable costs as planned. It was clear that the 2019 after-tax operating profit goal would not be reached unless some corrective actions were taken. Sitaram's president assigned a management committee to analyse the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president A. Reduce the selling price by ₹40. The sales organization forecasts that with the significantly reduced sales price, 2,700 units could be sold during the remainder of the year. Total fixed costs per annum and variable costs per unit will stay as budgeted. B. Lower the variable costs per unit by ₹25 through the use of less expensive materials and slightly modified manufacturing technique. The sales price will also be reduced by ₹30 and sales of 2,200 units for the remainder of the year are forecast. C. Cut fixed costs by ₹10,000 and lower the selling price by 5 percent. Variable costs per unit will be unchanged. Sales of 2,000 units would be expected for the remainder of the year. Determine the number of units that Sitaram Company must sell in order to break even, assuming no changes are made to the selling price and cost structure. 400 450 500 550

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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While Sitaram's sales usually rise during the second quarter, the May financial statements reported that sales were not meeting expectations. For the first five months of 2019, only 350 units had been sold at the established price, with variable costs as planned. It was clear that the 2019 after-tax operating profit goal would not be reached unless some corrective actions were taken. Sitaram's president assigned a management committee to analyse the situation and develop several alternative courses of action. The following mutually exclusive alternatives were presented to the president

A. Reduce the selling price by ₹40. The sales organization forecasts that with the significantly reduced sales price, 2,700 units could be sold during the remainder of the year. Total fixed costs per annum and variable costs per unit will stay as budgeted.

B. Lower the variable costs per unit by ₹25 through the use of less expensive materials and slightly modified manufacturing technique. The sales price will also be reduced by ₹30 and sales of 2,200 units for the remainder of the year are forecast.

C. Cut fixed costs by ₹10,000 and lower the selling price by 5 percent. Variable costs per unit will be unchanged. Sales of 2,000 units would be expected for the remainder of the year.

Determine the number of units that Sitaram Company must sell in order to break even, assuming no changes are made to the selling price and cost structure.

400

450

500

550

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