3-23 CVP analysis, sensitivity analysis. Tuff Kids Jeans Co. sells blue jeans wholesale to major retailers

across the country. Each pair of jeans has a selling price of $30 with $21 in variable costs of goods sold.

The company has fixed manufacturing costs of $1,200,000 and fixed marketing costs of $300,000. Sales

commissions are paid to the wholesale sales reps at 5% of revenues. The company has an income tax rate

of 25%.

1. How many jeans must Tuff Kids sell in order to break even?

2. How many jeans must the company sell in order to reach:

a. a target operating income of $450,000?

b. a net income of $450,000?

3. How many jeans would TuffKids have to sell to earn the net income in part 2b if (consider each requirement

independently).

a. The contribution margin per unit increases by 10%

b. The selling price is increased to $32.50

c. The company outsources manufacturing to an overseas company increasing variable costs per

unit by $2.00 and saving 60% of fixed manufacturing costs.