Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store
ID: 2543900 • Letter: A
Question
Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a first step, she has prepared the following analysis for her new store $1.80 0.72 Sales price per pair of sandals Variable expense per pair of sandals Contribution margin per pair of sandals Fixed expense per year $1.08 Building rental Equipment depreciation Selling Administrative 14,000 1,000 39,800 10,000 Total fixed expense $64,800 Required: 1. How many pairs of sandals must be sold each year to break even? What does this represent in total dollar sales? Break-even point in unit sales Break-even point in dollar sales pairsExplanation / Answer
Answer 1:
Break-even point in unit sales
(Total Fixed cost / Contribution per unit)
Total fixed costs
64800
Contribution margin per pair of sandals
1.08
Breakeven point in unit sales
(Total Fixed cost / Contribution per unit)
60000
Breakeven point in sales dollar
(Breakeven point in unit sales X Sale price of per pair of sandals)
Break-even point in unit sales
60000
Sale price of per pair of sandals
1.8
Break-even point in sales dollar
(Break-even point in unit sales X Sale price of per pair of sandals)
108000
Answer 3:
Target profit
2160
Add: Fixed costs
64800
Fixed cost and targeted profit
66960
Contribution margin per pair of sandals
1.08
Unit sales to earn target profit
(Fixed costs plus target profit /Contribution margin per pair of sandals)
Fixed cost plus targeted profit
66960
Contribution margin per pair of sandals
1.08
Unit sales to earn target profit
62000
Answer 4:
Increase in sales
30000
Sale price per paid or sandals
1.8
Thus, number of units to be sold extra
(30000 / 1.8)
16666.67
Contribution margin per pair of sandals
1.08
Extra contribution
(Extra units X Contribution per unit)
(16666.67 X 1.08)
18000
Extra fixed cost to be incurred to convert the parttime into full time
13000
Thus, profit would be
Extra contribution
18000
Less: Increase in fixed costs
13000
5000
Answer is yes as the overall profit will increase
Yes
Answer 5:
a:
Degree of operating leverage is calculated by using the following formula:
Contribution / Net operating income
Contribution margin
72900
Net Operating income
8100
Degree of operating leverage is calculated by using the following formula:
Contribution / Net operating income
9
b:
Contribution margin per pair of sandals
1.08
Number units expected to be sold in the next year
(67500 X 110%)
74250
Expected contribution margin
80190
Degree of operating leverage is calculated by using the following formula:
9 times
Thus, net operating income will be
(80190 / 9)
8910
Answer 1:
Break-even point in unit sales
(Total Fixed cost / Contribution per unit)
Total fixed costs
64800
Contribution margin per pair of sandals
1.08
Breakeven point in unit sales
(Total Fixed cost / Contribution per unit)
60000
Breakeven point in sales dollar
(Breakeven point in unit sales X Sale price of per pair of sandals)
Break-even point in unit sales
60000
Sale price of per pair of sandals
1.8
Break-even point in sales dollar
(Break-even point in unit sales X Sale price of per pair of sandals)
108000
Answer 3:
Target profit
2160
Add: Fixed costs
64800
Fixed cost and targeted profit
66960
Contribution margin per pair of sandals
1.08
Unit sales to earn target profit
(Fixed costs plus target profit /Contribution margin per pair of sandals)
Fixed cost plus targeted profit
66960
Contribution margin per pair of sandals
1.08
Unit sales to earn target profit
62000
Answer 4:
Increase in sales
30000
Sale price per paid or sandals
1.8
Thus, number of units to be sold extra
(30000 / 1.8)
16666.67
Contribution margin per pair of sandals
1.08
Extra contribution
(Extra units X Contribution per unit)
(16666.67 X 1.08)
18000
Extra fixed cost to be incurred to convert the parttime into full time
13000
Thus, profit would be
Extra contribution
18000
Less: Increase in fixed costs
13000
5000
Answer is yes as the overall profit will increase
Yes
Answer 5:
a:
Degree of operating leverage is calculated by using the following formula:
Contribution / Net operating income
Contribution margin
72900
Net Operating income
8100
Degree of operating leverage is calculated by using the following formula:
Contribution / Net operating income
9
b:
Contribution margin per pair of sandals
1.08
Number units expected to be sold in the next year
(67500 X 110%)
74250
Expected contribution margin
80190
Degree of operating leverage is calculated by using the following formula:
9 times
Thus, net operating income will be
(80190 / 9)
8910