Walker Corp. is a retail store that sells shoes and boots. In the past, it has bought all its shoes from a supplier for $15 per unit. However, Walker has the opportunity to acquire a small manufacturing facility where it could produce its own shoes. The projected data for producing its own shoes are as follows, for a pair of shoes: selling price $25; variable costs, $5; total fixed costs (per year), $125,000.
Required
1. If Walker acquired the manufacturing facility, how many pairs of shoes (per year) would it have to produce to break even (round your answer up, to the nearest whole unit)?
2. To earn an annual after-tax profit (πA) of $100,000, how many pairs of shoes would Walker have to sell if it buys the shoes from the supplier? How many pairs would it have to sell if it produces its own shoes? Walker's combined income tax rate, t, is estimated as 35%. Round up your answers, to the nearest whole number of units.
3. At what annual volume of sales (in units) would Walker be indifferent between the two decision alternatives (ignore income tax effects)? Show a computation of operating incomes to prove your answer.

Question

Quizplus · Accepted Answer

The Answer of Walker Corp. is a retail store that sells shoes and boots. In the past, it has bought all its shoes from a supplier for $15 per unit. However, Walker has the opportunity to acquire a small manufacturing facility where it could produce its own shoes. The projected data for producing its own shoes are as follows, for a pair of shoes: selling price $25; variable costs, $5; total fixed costs (per year), $125,000.
Required
1. If Walker acquired the manufacturing facility, how many pairs of shoes (per year) would it have to produce to break even (round your answer up, to the nearest whole unit)?
2. To earn an annual after-tax profit (πA) of $100,000, how many pairs of shoes would Walker have to sell if it buys the shoes from the supplier? How many pairs would it have to sell if it produces its own shoes? Walker's combined income tax rate, t, is estimated as 35%. Round up your answers, to the nearest whole number of units.
3. At what annual volume of sales (in units) would Walker be indifferent between the two decision alternatives (ignore income tax effects)? Show a computation of operating incomes to prove your answer.