solve the problem Question Three Fashions, Inc. is a retail store that sells swe

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solve the problem

Question Three Fashions, Inc. is a retail store that sells sweaters and jackets. In the past, it has bo all its sweaters from a supplier for $20 per unit and had no fixed costs for this line o clothing. However, Fashions has the opportunity to acquire a small manufacturing facility where it could produce its own sweaters. The projected data for producing its own sweaters are as follows: Selling price per unit Variable cost per unit Total fixed costs (per month) $30.00 $15.00 $150,000 Required: 1. If Fashions acquired the manufacturing facility, how many sweaters would it have to produce in order to break even? (Round your answer up, to the nearest whole number.) 2. To earn an after tax profit (TA) of $125,000 per month, how many sweaters would Fashions have to sell if it buys the sweaters from the supplier? If it produces its own sweaters? Fashion's combined income tax rate, t is 30%. (Round your answers up, to the nearest whole number.) 3. What is the profit-indifference sales volume in terms of the two options under consideration? (Ignore income tax effects.)

Explanation / Answer

2.

3.

At Indifference Point

Profit under Buy Option = Profit Under Manufacture Option

(Sales -variable cost-Fixed Cost ) Buy= (Sales - variable cost - Fixed cost)Manufacture

Let the Quantity be Q

30Q - 20Q-0 = 30Q-15Q - 150,000

10Q = 15Q - 150000

Q = 15000/5 = 30,000

Therefore Indifference Point = 30,000 units

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Selling Price = $                  30 Variable Cost = $                  15 Contribution Margin = $                  15 Fixed Cost = $        150,000

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