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    rmedina's Avatar
    rmedina Posts: 6, Reputation: 1
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    #1

    Apr 28, 2009, 03:28 PM
    Breakeven point and operating leaverage
    Footwear Inc mannufactures a complete line of men's and women dress shoes for independent merchants. The average selling price of its finished product is $85 per pair. The variable cos for this same pair of shoes is $58 , Footewear inc incurs in fixed costs of $170,000 per year.
    a-What is the break even point in pairs of shoes for the company- Answer 2931 pairs
    b- What is the dollar sales volume the firm must achieve to reach the breqak even point- Answer- 170,000
    c-What would be the firms profit or loss at the following units of production sold
    1-7000 pairs- Answer 19,000 profit
    2-9000 pairs- Answer 73,000 profit
    3- 15,000 pairs- Answer 235,000 profit

    Are my answers close to correct or not. Seems easy but I am a confused.
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #2

    Apr 28, 2009, 10:48 PM

    Where did you get your answer for (a)?

    (b) This is saying that the only expenses you have are the fixed expenses. Is that true?

    (c) These are all correct, which tells me you know enough about how the costs work to be able to at least come up with (b).
    rmedina's Avatar
    rmedina Posts: 6, Reputation: 1
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    #3

    Apr 29, 2009, 05:13 AM
    The answer to A should not be the one I had because if I subtract the variable cost per pair of $58 (85 - 58= $27 per pair profit) and divide 170,000 by that amount (27.00) equals 6,296.30 pairs as the break even point for the company.

    b-85(6296.30)=$535,160
    c-85(700)=170,000+58(7000)
    595,000=576,000
    =$19,000

    Are my answers correct?
    morgaine300's Avatar
    morgaine300 Posts: 6,561, Reputation: 276
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    #4

    Apr 29, 2009, 10:56 PM
    The answer to A should not be the one I had because if i subtract the variable cost per pair of $58 (85 - 58= $27 per pair profit) and divide 170,000 by that amount (27.00) equals 6,296.30 pairs as the break even point for the company.
    That is correct. Except that the $27 is not "profit" - it's contribution margin.

    b-85(6296.30)=$535,160
    Correct idea. You may want to check whether your text wants you to round the 6296.3 - you can't make .30 of something.

    c-85(700)=170,000+58(7000)
    595,000=576,000
    =$19,000
    Hmm - maybe that's what you were taught, but seems like the hard way. You're getting $27 out of each pair sold. 27 x 7000 = 189,000 CM - 170,000 fixed = 19,000. But your original answers for (c) were correct, regardless of how you got there.
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