Original Break-even calculations Sales (total number of shoes sold in a month x selling price each shoe)
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Question:
Original Break-even calculations
Sales (total number of shoes sold in a month x selling price each shoe) | 100,000 |
Variable costs (40%) | (40,000) |
Contribution margin (Sales - Variable costs) | 60,000 |
Fixed costs - given | (35,000) |
Operating income (Contribution margin - fixed cost) | 25,000 |
Break-even point (fixed costs / variable costs per unit) = | 583.33 units |
2) Revised Break-even after extra $1,500 of advertising
Sales New Sales (new sales volume x selling price of each shoe) ((50% x 1,000) + 1,000) x $100 | 150,000 |
Variable costs (original 40% + $2/pair) (Selling price x new variable cost/pair) | 63,000 |
Contribution margin (Sales - Variable Costs) | 87,000 |
Fixed costs (original fixed costs + additional marketing cost) (35,000 + 1,500) | 36,500 |
Operating income (Contribution margin - fixed cost) | 50,500 |
Break-even point (fixed costs / variable costs per unit) = | 629.31= |
Respond to the following:
- What is the new break-even point after including the effects of the increased advertising and higher variable costs?
- Compare the two break-even results, and make a recommendation on whether the company should change or not.
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