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-   -   Accounting Question (please help) (https://www.askmehelpdesk.com/showthread.php?t=613279)

  • Nov 18, 2011, 05:27 PM
    ITex820
    Accounting Question (please help)
    The following details relate to a shop owned by Joan Socks, which currently sells 12,000
    Pairs of shoes annually.

    Selling price per pair of shoes $80
    Purchase cost per pair of shoes $50

    Total annual fixed costs:

    $
    Salaries 80,000
    Advertising 40,000
    Other fixed expenses 150,000

    Required


    (a) Calculate the breakeven point and margin of safety in number of pairs of shoes sold;

    (b) Assume that 11,000 pairs of shoes were sold in a year. Calculate the shop's net profit (or
    Loss);

    (c) If a selling commission of $5 per pair of shoes sold was to be introduced, calculate the
    Number of pairs of shoes which would need to be sold in a year in order to earn a net
    Profit of $50,000;

    (d) Assume that for next year an additional advertising campaign costing $20,000 is
    Proposed, whilst at the same time selling prices are to be increased by 15%. Calculate
    The breakeven point in numbers of pairs of shoes;
  • Nov 19, 2011, 04:33 AM
    rehmanvohra
    This appears to be a home work question. If you had shown your work, some one will surely help you. However, I can show you the steps for solving the problem which is also available in your text book(s).

    1. BE Point = Fixed costs/Contribution per unit
    2. Net Profit = sales in units x contribution per unit - fixed costs
    3. Number of units to be sold to achieve desired profit:
    (Desired profit + Total fixed costs)/Revised contribution per unit
    4. Revised BEP = Revised fixed costs/revised contribution per unit
  • Nov 19, 2011, 06:48 AM
    NightVitokia
    Solutions

    (a) The Breakeven Point and Margin of Safety;
    Q = ($80,000+$40,000+$150,000)/($80 - $50)
    Q = $270,000/$30
    Q = 9,000 pairs of shoes for break even

    Margin of Safety:
    Sales (at annual sales of 12,000 pairs of shoes) (a) $960,000
    Break-even sales (at 9,000 pairs of shoes) $720,000
    Margin of Safety (b) $240,000
    Margin of Safety percentage, (b) / (a) 25%



    (b)
    With 11,000 pairs of shoes sold;
    11,000 x ($80 - $50) - $270,000
    $330,000 - $270,000 = $60,000 net profit


    (c) With selling commission of $5 to earn $50,000;
    $50,000 = ($80 - $50 - $5) x Q - $270,000
    $50,000 = $25 x Q - $270,000
    $25 x Q = $50,000+$270,000
    Q = $320,000 / $25
    Q = 12,800 pairs of shoes


    (d) With advertizing campaign and selling price rise;
    Q = ($80,000+$40,000+$150,000+$20,000) / ($92 - $50)
    Q = $290,000 / $42
    Q = 6,905 pairs of shoes to break even
  • Nov 19, 2011, 10:01 PM
    rehmanvohra
    Good show

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