The big shoe company are planning production for next year. The selling price is $30per pair, raw materials cost $7.50 and labor $5.50 per pair. Fixed costs are$150,000. Planned production for next year is 12,500 pairs.Requireda) Calculate the marginal cost per pair; the absorption cost per pair; the breakeven point and a break even graph in steps of 100 pairs. The profit or loss is12,500 pairs are sold.b) Flashsale offers to buy 2,500 pairs of boots at $20 a pair. This is withincapacity and fixed costs will stay the same. Please advise the managementwhether or not to accept the order.c) A manufacturer in Slaka has offered to make the boots for $20 a pair up to10,000 pairs and $15 a pair above this level. Big shoe would stop productionand act as distributers. Fixed costs would fall to $50,000 every year. Advisemanagement of the financial consequences of accepting this offerd) What other issues apart from finance does the Big Shoes Company need toconsider?

Marginal cost refers to the additional cost incurred by a company when it produces one additional…

Answered: The big shoe company are planning…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter16: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 36P: Faldo Company produces a single product. The projected income statement for the coming year, based...

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Faldo Company produces a single product. The projected income statement for the coming year, based on sales of 200,000 units, is as follows: Required: 1. Compute the unit contribution margin and the units that must be sold to break even. Suppose that 30,000 units are sold above the break-even point. What is the profit? 2. Compute the contribution margin ratio and the break-even point in dollars. Suppose that revenues are 200,000 greater than expected. What would the total profit be? 3. Compute the margin of safety in sales revenue. 4. Compute the operating leverage. Compute the new profit level if sales are 20 percent higher than expected. 5. How many units must be sold to earn a profit equal to 10 percent of sales? 6. Assume the income tax rate is 40 percent. How many units must be sold to earn an after-tax profit of 180,000?
Suppose that a company is spending 60,000 per year for inspecting, 30,000 for purchasing, and 40,000 for reworking products. A good estimate of nonvalue-added costs would be a. 70,000. b. 130,000. c. 40,000. d. 90,000. e. 100,000.
You are selling a new line of T-shirts on the boardwalk. The selling price will be $25 per shirt The labor cost is $5 per shirt. Additionally, the cost of materials will be $10 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually, and the sales and marketing expenses are $20,000 a year. What is the break-even in units and BEP in dollars? Formulas: Contribution Margin = Unit Selling Price-Unit Variable Cost Profit - Total Revenue - Total Cost or Profit - Quantity Sold (Selling Price per unit - Variable Cost per unit) - Fixed Cost Fixed Cost Break-even (quantity) = Unit Selling Price - Unit Variable Cost Break-even ($) = Break-even (quantity). X Quantity Sold Fixed Cost + Profit Desired Unit Selling Price - Unit Variable Cost Target Quantity for certain profit =
21) The initial cost for a factory is $ 6M. The major product of the factory has revenue of $100 per unit and $55 per unit as a variable cost. Based on the given, find the following: (a) QBE per year. (b) the annual profit if the expected sales between 100,000 and 200,000.
A company is planning a new product. Market research information suggests that the product should sell 20,000 units at $35.00/unit. The company seeks to make a margin of 20% on sales. It is estimated that the lifetime costs of the product will be as follows: a. Research and development costs $60,000 b. Manufacturing costs $25/unit c. Decommissioning Costs $40,000 What is the Target Cost per unit? What is the original lifecycle cost per unit?
ABC Company manufactures the product XE-17. The product is sold at a unit price of $70.Variable expenses are $13.50 per unit and fixed expenses are $220,000 per year.Required :a. What should be the product’s CM ratio? b. Calculate the BEP is sales dollars and in units for ABC Company. c. The manager of ABC company estimates that in the coming year, the company’s sales willincrease by $80,000 (from the current sales). How much should the net profit / loss increase/decrease if the fixed costs remain constant? d. The manager of ABC company predicts that by spending an additional $80,000 per year onadvertising and using higher quality raw material (which will in turn increase the raw materialcost per unit by $3), and increasing selling price per unit by 2% (to compensate for theincreased costs), unit sales will increase by two- thirds of the current sales units. Should thecompany go with the manager’s proposed plan? Explain your answer. (Assume that in thecurrent year, the company sold…
ABC Company manufactures the product XE-17. The product is sold at a unit price of $70.Variable expenses are $13.50 per unit and fixed expenses are $220,000 per year.Required :a. What should be the product’s CM ratio? b. Calculate the BEP is sales dollars and in units for ABC Company. c. The manager of ABC company estimates that in the coming year, the company’s sales willincrease by $80,000 (from the current sales). How much should the net profit / loss increase/decrease if the fixed costs remain constant? d. The manager of ABC company predicts that by spending an additional $80,000 per year onadvertising and using higher quality raw material (which will in turn increase the raw materialcost per unit by $3), and increasing selling price per unit by 2% (to compensate for theincreased costs), unit sales will increase by two- thirds of the current sales units. Should thecompany go with the manager’s proposed plan? Explain your answer. (Assume that in thecurrent year, the company sold…
Music Now plans to sell 6,000 MP3 players at $60 each in the coming year. Variable cost per unit is $12 and total fixed cost is $24,000. Required: A. Calculate the variable cost ratio.fill in the blank 1 % B. Calculate the contribution margin ratio.fill in the blank 2 % C. Calculate the break-even point in sales dollars.$fill in the blank 3 D. If Music Now has a target profit of $90,000, how many MP3 players will it have to sell?fill in the blank 4 MP3 players
There are two competing alternatives in your textile business. A-type Tufting Machine costs $10,000 and B-Type Tufting Machine costs $35,000. A-type Tufting Machine can result in $11,000 labour savings in the first two years and $10,000 in year three. B-type Tufting Machine can result in $20,000 labour savings in the first two years. Assume MARR=8%. and find the difference between the net present worth of these two alternatives using infinite planning horizon with project repeatability. Question 2 options: a) Between $19,176 and $20,367 b) Between $17,176 and $18,367 c) Between $25,176 and $26,367 d) Between $29,176 and $30,367 e) Between $23,176 and $24,367 f) None of the answers are correct
There are two competing alternatives in your textile business. A-type Tufting Machine costs $10,000 and B-Type Tufting Machine costs $35,000. A-type Tufting Machine can result in $11,000 labour savings in the first two years and $10,000 in year three. B-type Tufting Machine can result in $20,000 labour savings in the first two years. Assume MARR=8%. and find the difference between the net present worth of these two alternatives using infinite planning horizon with project repeatability. a) None of the answers are correct O b) Between $19,176 and $20,367 c) Between $29,176 and $30,367 d) Between $17,176 and $18,367 e) Between $23,176 and $24,367 f) Between $25,176 and $26,367
Chillmax Company plans to sell 3,500 pairs of shoes at $60 each in the coming year. Variablecost is 35% of the sales price; contribution margin is 65% of the sales price. Total fixed costequals $78,000 (includes fixed factory overhead and fixed selling and administrative expense). Required:1. Calculate the sales revenue that Chillmax must make to earn operating income of $81,900by using the point in sales equation.2. Check your answer by preparing a contribution margin income statement based on thesales dollars calculated in Requirement 1.Brief Exercise 7-30 Break-Even Point in U
b) Ceria Company plans to sell 5,000 bicycle helmets at RM75 each in the coming year. Variable cost is 60% of the sales price; contribution margin is 40% of the sales price. Total fixed cost equals RM49,500 (includes fixed factory overhead and fixed selling and administrative expense). Required: Calculate the sales income that Ceria must make to break even by using the break- even point in sales equation. Check your answer by preparing a contribution margin income statement based on the break-even point in sales value (RM).

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