ore interest and taxes of $250,000 What selling price per unit is necessary to a

Question

ore interest and taxes of $250,000 What selling price per unit is necessary to achieve this b. Set up a pro forma income statement to verify your solution to 65 percent of sales aThe firm wants to and sell 300,000 units 1 ieve a level of earnings before interest level of line of men's and women's dress shoes for independent merchants. The av ing price of its finished product is $85 per pair. The variable cost for this same pair of shoes is $58. Footwear Inc. incurs fixed costs of $170,000 per year erage sell- 3 12-4.(Break-een point and operating leverage) Footwear Inc. manufactures a co 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? 9,000 pairs of shoes? 15,000 pairs of shoes 12-5.(Operating leverage) The Quarles Distrihut sortment of cold air intn

Explanation / Answer

As per policy, only one question is allowed to answer, so answering 12-4 :

12-4)

a) Break Even Point = Fixed Cost / Contribution per pair of shoe (ie. Selling price - Variable costs)

= $170000 / $85 - $58 = 6296.30 shoes

b) The dollar sales volume to achieve the break even point = 6296.30 pairs * $85/shoe pair = $535185.50

c)

Profit at sale of 7000 pairs of shoes = (No. of pairs * Contribution per pair ) – Fixed costs = (7000*(85-58) – 170000 = $19000

Profit at sale of 9000 pairs of shoes = (No. of pairs * Contribution per pair ) – Fixed costs = (9000*(85-58) – 170000 = $73000

Profit at sale of 15000 pairs of shoes = (No. of pairs * Contribution per pair ) – Fixed costs = (15000*(85-58) – 170000 = $235000

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