Footwear Inc. manufactures a complete line of men's and women's dress shoes for independent merchants. The...
Footwear Inc. manufactures a complete line of men's and women's dress shoes for independent merchants. The average selling price of its finished product is $95 per pair. The variable cost for this same pair of shoes is $60 Footwear Inc. incurs fixed costs of 170,000 per year.
a. What is the break-even point in pairs of shoes sold for the company?
b. What is the dollar sales volume the firm must achieve to reach the break-even point?
c. What would be the firm's profit or loss at the following units of production sold: 7,000 pairs of shoes? 11,000 pairs of shoes? 17,000 pairs of shoes?
Homework Answers
a.Selling Price per Unit = $95
Less: Variable Cost per Unit = $60
Contribution Margin per Unit = $35
Fixed Costs = $170,000
Break Even point = Fixed Costs/Contribution Margin per Unit
= 170,000/35
= 4,857.14 or 4,858 pairs of shoes
b.Dollar Sales Volume = Fixed Cost/Contribution Margin Ratio or contribution margin in units*selling price per unit
= 4,858*95
= $461,510
c.
|
7,000 pairs |
11,000 pairs |
17,000 pairs |
|
|
Sales |
665,000 |
1,045,000 |
1,615,000 |
|
Less: Variable Cost |
420,000 |
660,000 |
1,020,000 |
|
Contribution Margin |
245,000 |
385,000 |
595,000 |
|
Less: Fixed Costs |
170,000 |
170,000 |
170,000 |
|
Profit/(Loss) |
75,000 |
215,000 |
425,000 |
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