Fleet Foot buys hiking socks for $6 a pair and sells them for $10. Management budgets...

 

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Fleet Foot buys hiking socks for $6 a pair and sells them for $10. Management budgets monthly fixed expenses of $10,000 for sales volumes between 0 and 12,000 pairs. Required 1. Use the contribution format income statement approach, and compute monthly breakeven sales in units and dollar terms. 2. If Fleet Foot sells 5,000 units per month, compute the margin of safety in units and dollar terms. 3. Compute the monthly sales level (in units) required to earn a target operating income of $14,000. 4. Compute Degree of Operating Leverage, if the total sale is 5,000 units per month. Using the degree of operating leverage, compute the net income, if the sale increases by 20%. 5. The management has put forward the following options for your suggestion. a. To increase the sale from 5,000 units to 5,500 units by increasing advertisement expenses by $5,000 b. To increase sales from 5,000 units to 5,500 units by increasing the quality of products (by buying hiking socks of high quality and paying $7, instead of $6. What are your recommendations regarding options A and B? 6. Prepare a graph of Fleet Foot's CVP relationships, considering a total sale of 5,000 units. Draw the sales revenue line, the fixed expense line, and the total expense line. Label the axes, the breakeven point, the operating income area, and the operating loss area. Fleet Foot buys hiking socks for $6 a pair and sells them for $10. Management budgets monthly fixed expenses of $10,000 for sales volumes between 0 and 12,000 pairs. Required 1. Use the contribution format income statement approach, and compute monthly breakeven sales in units and dollar terms. 2. If Fleet Foot sells 5,000 units per month, compute the margin of safety in units and dollar terms. 3. Compute the monthly sales level (in units) required to earn a target operating income of $14,000. 4. Compute Degree of Operating Leverage, if the total sale is 5,000 units per month. Using the degree of operating leverage, compute the net income, if the sale increases by 20%. 5. The management has put forward the following options for your suggestion. a. To increase the sale from 5,000 units to 5,500 units by increasing advertisement expenses by $5,000 b. To increase sales from 5,000 units to 5,500 units by increasing the quality of products (by buying hiking socks of high quality and paying $7, instead of $6. What are your recommendations regarding options A and B? 6. Prepare a graph of Fleet Foot's CVP relationships, considering a total sale of 5,000 units. Draw the sales revenue line, the fixed expense line, and the total expense line. Label the axes, the breakeven point, the operating income area, and the operating loss area.

Answer rating: 100% (QA)

1 To calculate the monthly breakeven sales in units and dollar terms we need to consider the fixed expenses and the contribution margin per unit Fixed Expenses 10000 Selling Price per Unit 10 Variable ... View the full answer