Question
CLP is planning to go into the designer jeans business. They project the following costs for the first year of operation: Rental payments$1,500 per month
CLP is planning to go into the designer jeans business. They project the following costs for the first year of operation:
Rental payments$1,500 per month
Direct Labor$9.50 per hour
Raw Materials$6 per pair of jeans
Overhead$975 per week
Interest on Capital$1,350 per month
It takes 20 minutes of direct labor to assemble a pair of pants, and CLP sells his designer jeans for $39.50 a pair.
How many pairs of jeans must be sold to break even the first year? (assume a 50 week year)
If profits total $38,500 for the first year, what is CLP's safety margin?
After a successful first year, CLP foresees a decline in designer jeans demand as a result of a weakening economy.If CLP wants a break-even point of 2,300 units, how much of a reduction in fixed costs would be necessary?
What three alternative methods are available for reducing the break-even point? Using each of these methods, what adjustments must be made to meet CLP's break-even point of 2,300 units?
Considering the uncertain demand conditions faced by CLP, which of the three methods for reducing break-even points is the most appropriate? Why?
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