Question
Nail salon Co. sells nail polish beauty kits wholesale to major retailers across the country. Each nail polish beauty kit has a selling price of
Nail salon Co. sells nail polish beauty kits wholesale to major retailers across the country. Each nail polish beauty kit has a selling price of $20 with $11 in variable costs of goods sold. The company has fixed manufacturing costs of $500,000 and fixed marketing costs of $100,000. Sales commissions are paid to the wholesale sales reps at 5% of revenues. The company has an income tax rate of 15%.
Required:
- How many nail polish beauty kits must Nail Salon sell in order to break even?
- How many kits must the company sell in order to reach:
- a target operating income of $900,000?
- a net income of $900,000?
- How many kits would Nail salon have to sell to earn the net income in part 2b if (consider each requirement independently).
- The contribution margin per unit increases by 30%
- The selling price is increased to $50.50
- The company outsources manufacturing to an overseas company increasing variable costs per unit by $4.00 and saving 80% of fixed manufacturing costs.
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%.
Required:
- How many jeans must Tuff Kids sell in order to break even?
- How many jeans must the company sell in order to reach:
- a target operating income of $450,000?
- a net income of $450,000?
- How many jeans would TuffKids have to sell to earn the net income in part 2b if (consider each requirement independently).
- The contribution margin per unit increases by 10%
- The selling price is increased to $32.50
- The company outsources manufacturing to an overseas company increasing variable costs per unit by $2.00 and saving 60% of fixed manufacturing costs.
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