Question
Repair Your Sole is a shoe repair business located in a major shopping centre. The following financial data is available for the last two financial
Repair Your Sole is a shoe repair business located in a major shopping centre. The following financial data is available for the last two financial periods:
2021 | 2022 | |
Shoe repairs (number of units) | 10,000 | 15,000 |
Total Sales | 1,200,000 | 1,800,000 |
Total costs (includes total fixed costs and total variable costs) | 650,000 | 850,000 |
Profit | 550,000 | 950,000 |
The selling price of a shoe repair is $120.
The variable cost per shoe service is $40.
The fixed costs per year are $250,000.
The owner of the business is now doing some planning for 2023.
Required
a. Calculate the break-even level of sales in both units and dollars in 2022.
[4 marks]
b. The owner of the business is considering purchasing a new machine which would depreciate at $90,000 per year, but would lead to a decrease in variable costs of $5.00 per unit. What is the new breakeven point in both units and dollars if she went ahead with this purchase?
[4 marks]
c. Assuming the owner went ahead with the proposal in b above, what level of sales are required in 2023 to maintain the profit at $950,000.
[4 marks]
d. Repair Your Sole has a competitor in a nearby shopping centre that provides the same service. They have the same variable costs per unit, but offer a lower price. The competitors financials show the same profit as Repair Your Sole. Explain two (2) ways this could be possible.
[4 marks]
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