Fashion Headwear, Ltd. operates a chain of exclusive ski hat boutiques in the western United States. The

Question:

Fashion Headwear, Ltd. operates a chain of exclusive ski hat boutiques in the western United States. The stores purchase several hat styles from a single distributor at $18 each. All other costs incurred by the company are fixed. Fashion Headwear, Ltd. sells the hats for $30 each.

Required

a. If fixed costs total $150,000 per year, what is the breakeven point in units? In sales dollars?

b. What is Fashion Headwear's contribution margin ratio? Its variable cost ratio?

c. Assume that Fashion Headwear, Ltd. currently operates at a loss. What actions could managers take to lower the breakeven point and begin earning a profit?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...