1. How many shoes per year must Jim sell to break even?

2. What is the annual cost at the BEP found in part a?

3. If Jim could sell 2,000 shoes per year, should he go ahead with this venture? Why?

Jim Wells, the owner of a farm supply store in Elmira, Ontario, was thinking of introducing a new product: shoes for cows with foot (hoot) infection (rot). Jim had been approached by several farmers asking for it. He studied the market and found nothing durable and effective at the $40-$100 per shoe range. There are over 13 million dairy cows in North America, and approximately 2 percent of them develop foot infection annually (beef cows are slaughtered when this happens). Jim designed the shoe and approached Kaufman Footwear in Kitchener to make some prototypes.

Next, he gave the prototypes to his farmer friends to test. After one year of design improvements, Jim was wondering whether to go ahead with marketing of the shoe. The cost of the mould to be used by the shoe factory was $10,000, and the mould was expected to last five years (use straight-line depreciation). The cost of Jim's time promoting the shoe, including attending farm shows, was approximately $10,000 per year. The cost of shoe inventory and space in Jinl's store was estimated to be $1,000 per year. The shoe factory wanted $20 per shoe with a mininlum order size of 100 shoes. Jim was thinking of pricing a shoe at $40.