Crystal Lake sells custom shoes for special needs children. The average amount t
ID: 2559438 • Letter: C
Question
Crystal Lake sells custom shoes for special needs children. The average amount they charge for a pair is $30. Crystal Lake has calculated the average variable cost of a shoe to be $18. Its monthly fixed cost is $54,000. Instructions: Calculate each question and show all workings. 1. Calculate how many custom shoes must sell in a month to break even using the contribution margin approach. (10 points) 2. Determine the breakeven point in sales dollars using the contribution margin approach. (10 points) 3. Use the income statement approach to determine the operating income. Show all breakdown using the income statement headings. (10 points) 4. This owner of Crystal Lake currently works for another shoe company and earns $9,600 per month. She does not want to incur the risk of owning her own business unless she believes that he can have profit of at least the amount she currently earns. Determine the number of shoes Crystal Lake must customize in a month to earn profit of $9,600. (10 points) Crystal Lake sells custom shoes for special needs children. The average amount they charge for a pair is $30. Crystal Lake has calculated the average variable cost of a shoe to be $18. Its monthly fixed cost is $54,000. Instructions: Calculate each question and show all workings. 1. Calculate how many custom shoes must sell in a month to break even using the contribution margin approach. (10 points) 2. Determine the breakeven point in sales dollars using the contribution margin approach. (10 points) 3. Use the income statement approach to determine the operating income. Show all breakdown using the income statement headings. (10 points) 4. This owner of Crystal Lake currently works for another shoe company and earns $9,600 per month. She does not want to incur the risk of owning her own business unless she believes that he can have profit of at least the amount she currently earns. Determine the number of shoes Crystal Lake must customize in a month to earn profit of $9,600. (10 points)
Explanation / Answer
Answer
A
SP per unit
30
B
Variable cost per unit
18
C=A-B
Contribution margin per unit $
12
A
Fixed Cost (monthly)
54000
B
Contribution margin per unit $
12
C=A/B
Break Even units (shoes) for a month
4500
A
Contribution margin per unit
12
B
SP per unit
30
C=(A/B) x 100
Contribution margin ratio
40%
D
Fixed Cost
54000
E=D/C
Break Even point in Sales dollars $
135000
*At Break Even point, Net operating income will be NIL or zero
Units
Per unit
Amount $
Sales Revenue
4500
30
135000
(-) Variable Cost
4500
18
81000
Contribution Margin
4500
12
54000
(-) Fixed Cost
54000
Net Operating Income (at Break Even)
0
A
Target Profit
9600
B
Fixed Cost
54000
C=A+B
Contribution margin required to attain target profit
63600
D
Contribution Margin per unit
12
E=C/D
No. of shoes to be sold to earn a target profit of $9600
5300
A
SP per unit
30
B
Variable cost per unit
18
C=A-B
Contribution margin per unit $
12
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