The Limited is planning a new line of leather jean jackets for fall. It plans to

Question

The Limited is planning a new line of leather jean jackets for fall. It plans to retail the jackets for $100. It is having the jackets produced in the Dominican Republic. Although The Limited does not own the factory, its product development and design costs are $400,000. The unit variable cost of the jacket, including transportation to the stores, is $45. For this line to be successful, The Limited needs to make $900,000 profit. Show ALL you work.

(a) What is its break-even point (i) in units and (ii) in dollars?

b) The buyer has just found out that The GAP, one of The Limited's major competitors, is bringing out a similar jacket that will retail for $90. If The Limited wishes to match The GAP's price, how many additional units will it have to sell?

2.      Mall kiosk operator, Manny Perez, bought a tie for $9 and priced it to sell for $15. What was his markup %: (a) on the selling price, and (b) on cost? (Must show all workings, line by line).

Explanation / Answer

* Not considering required profit for BEP analysis as BEP happens at no profit no loss level of opeartion The Limited BEP calculation Details Amt $ a a Sales Price /Unit 100 b Less : Variable Cost/Unit -45 c Contribution Margin /Unit 55 d Fixed design & dev cost                  400,000 e Break Even sales in Units =d/c                      7,273 f Break Even sales in$ =e*a                  727,273 b To match GAP price sales price/unit=$90 Details Amt $ a Sales Price /Unit 90 b Less : Variable Cost/Unit -45 c Contribution Margin /Unit 45 d Fixed design & dev cost                  400,000 e Break Even sales in Units =d/c                      8,889 f Break Even units with sales price $100/unit                      7,273 g Additional units to be sold for break even =e-f                      1,616 2 Manny Perez mar up on tie Details Amt $ a Cost of a tie 9 b Sales Price /tiel 15 c Mark up per tiel 6 d MArk up % on selling price= c/b*100 = 40% e Mark up % on cost =c/a*100 67%

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