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Walker Corp

Question 83

Essay

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: Sales price $25;Variable costs 5;Fixed costs 125,000
Required:
(1)If Walker acquired the manufacturing facility,how many pairs of shoes would it have to produce in order to break even (round up to the nearest whole unit)?
(2)To earn an after-tax profit of $100,000,how many pairs of shoes would Walker have to sell if it buys the shoes from the supplier? If it produces its own shoes? Walker's tax rate is 35%.Round up to the nearest whole unit.
(3)Walker is indifferent between the two alternatives at sales of how many pairs of shoes (ignore income tax effects)? Show a computation of operating income to prove your answer.

Correct Answer:

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Feedback: (1)BE = (f + N)/(p - v)= ($12...

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