The Green Shoe Company has manufactured a new line of shoes. You have been given

Question

The Green Shoe Company has manufactured a new line of shoes. You have been given the task of evaluating the costs and determining the break even point of this new production line. Because this product line consists of mixed costs, you have decided to use the "High/Low" method to sample the production line output and to calculate the variable and fixed costs. Using the following information, determine the variable cost rate and total fixed costs of this new line of shoes: variable Cost Rate calculation: Calculations using "High" output information: Calculations using "Low" output information: Calculate the break even point if these shoes sell for a price of $6.50 each.

Explanation / Answer

No.of units U Total cost T Variable cost per unit C Total variable cost V=U*C Total fixed cost T-V High 20000 52000 1.4 28000 24000 Ans Low 10000 38000 1.4 14000 24000 Ans High low method= Cost at high point-Cost at low point/No.of units at high point-no.of units at low point variable cost per unit 52000-38000/20000-10000 1.4 Break even point Sales 6.5 Variable cost per unit 1.4 Contribution margin per unit 5.1 Fixed cost $24,000 Break even point 24000/5.1 4706 round off Break even point in $ 4706*6.5    $30588 Ans

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