The variable cost in NewShoes is the unit cost of the product. Fixed costs are t

Question

The variable cost in NewShoes is the unit cost of the product. Fixed costs are the marketing expenses for a region along with the allocated product development expense. Applying the formula with a variable cost of $40, and fixed expenses of $3,500,000, the break-even price for 100,000 units would be: break-even price = $40 + $3,500,000 / 100,000 = $40 + $35 = $75

1. Using the fixed expenses and projected sales from the example, what would the break-even price be if unit cost is $35?

2. If the break-even price is $75, and your target return on sales is 20%, what is the selling price?

Use the following data for questions 3 & 4 units sold $100.000 consumer promotions $1,800,000 unit cost $40 personal selling 5 salespeople @ $80,000 each target return on sales 10% dealer promotions $1,200,000 advertising $1,500,000 product development $700,000

3. Calculate the break-even price.

4. What would the selling price have to be to get the target return?

5. What other factors besides break-even should you consider before setting price?

Explanation / Answer

Ans-

1)Fixed expense=$3500000

unit=100000

Unit cost =$35

Break-even price = $35+ $3,500,000 / 100,000 = $35 + $35 = $70

2) Break-even price $75

Add-Return on sales 20% or $18.75

25% on cost(75*20%)

Selling price/unit $93.75

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