Siberian Ski Company recently expanded
its manufacturing capacity, which will allow it to produce up to 15,000 pairs of cross-country skis of the
mountaineering model or the touring model. The Sales Department assures management that it can sell
between 9,000 pairs and 13,000 pairs of either product this year. Because the models are very similar,
Siberian Ski will produce only one of the two models.

The following information was compiled by the Accounting Department.

Per Unit (Pair) Data
	Mountaineering	Touring
Selling price	$88.00	$80.00
Variable costs	$52.80	$52.80

Fixed costs will total $369,600 if the mountaineering model is produced but will be only $316,800 if the
touring model is produced. Siberian Ski is subject to a 40% income tax rate.

The total sales revenue at which Siberian Ski Company would make the same profit or loss
regardless of the ski model it decided to produce is:

Correct answer: (A)

To solve this question, we need to create the two profit functions and set the left sides equal to one
another, then create the two revenue functions and set the left sides equal to one another. Then solve for the
one unknown that remains after we plug the second formula into the first to eliminate one of the unknowns.
The two formulas we end up with are:

Profit equation: 35.2M − 369,600 = 27.2T − 316,800

Revenue equation: $88M = $80T

Solving the revenue equation for M in order to express T in terms of M, we get:

M = 80/88T or M = 0.90909T

We then substitute 0.90909 as the value for M into the profit equation and get the following formula: (35.2 ×
.90909T) – 369,600 = 27.2T – 316,800

Perform the multiplication within the parentheses on the left side of the equation:

32T – 369,600 = 27.2T – 316,800

Subtract 27.2T from both sides and add 369,600 to both sides:

4.8T = 52,800

Divide both sides of the equation by 4.8 to solve for T:

T = 11,000

Using 11,000 as the value for T, we can now calculate the revenue: 11,000 units × $80/unit = $880,000.

If we were to do the same thing but solve for T first, we would get the same answer.