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 CLPs 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 CLPs 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?