Question 3

Green Sole Shoes makes handcrafted footwear from natural materials that are ethically sourced and produced by farmers and communities all around the world. The vision of its business is threefold 1) to provide footwear that is both high quality and comfortable and 2) to undertake its business operations following Fairtrade principles and 3) to support the communities in which they operate by providing economic and educational opportunities. Green Sole Shoes has recently opened a new factory in Guatemala, where it produces a range of shoes using fabric handwoven on wooden looms, using traditional techniques. Harry Simpson, the owner of Green Sole Shoes, has asked you, as the businesss management accountant, to provide information relating to the performance of the factory in the coming year. You have collected the following information. Each pair of shoes produced at the factory will be sold for $80. Variable costs required to manufacture one pair of shoes will be $20 and total fixed costs per year are expected to $60,000. Green Sole Shoes has decided that it would like to earn a target profit of $90,000 in the coming year.

Requirements: Using the information above; 1. Calculate the contribution margin per unit for each pair of shoes 2. Calculate the total contribution margin if 1,200 pairs of shoes were sold. 3. Determine the breakeven point in sales of pairs of shoes.