olden Rams Clothing Company is considering the introduction

olden Rams Clothing Company is considering the introduction of a new shoe for sales by local vendors. The company has collected the following price and cost characteristics Sales price Variable cost Fixed cost S 15 per unit 9 per unit 45,000 per month 1. What is the break-even point in units? 2. What is the break-even point in sales dollars? of $6,000. 3. How many units must be sold per month to make an operating profit 4. Assume that Golden Rams plans to sell 10,000 units per month. What will be the operating profit? Referring to (4) above, what is the impact on operating profit if the sales price increases by 20 percent? 5.

Solution

1 Break even point in units = Fixed cost/Unit contribution margin = 45000/(15-9) = 7500 2 Break even point in sales dollars = 7500*15 = $112500 3 Units to be sold = (45000+6000)/(15-9)= 8500 4 Operating profit = 10000*(15-9)-45000= $15000 5 Revised selling price = 15*1.2 = $18 Operating profit = 10000*(18-9)-45000= $45000 Operating profit increases by $30000(45000-15000)