Sophie Smart and George Sharp finally determined the hours of labor time needed to produce one pair

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Question:

Sophie Smart and George Sharp finally determined the hours of labor time needed to produce one pair of shoes. They noticed that between 170 and 180 pairs of shoes (with a learning curve of 78%) the time needed for each new pair levels off. Therefore, Sophie and George decided to base the labor time per pair on the time needed to make the 179^th pair rounded to the closest one hundredth of an hour.

Since the laborers have been diligent, Sophie and George raised their pay to $22.50/hour. Now they are trying to determine the best styles to promote on the market. Some styles are more desired and therefore the customers are willing to pay more. To date, there are four styles, two for men and two for women. The shoe lines are listed below with their current market prices and sales volumes:

*Style of Shoe*	*The Gazelle*	*The Swan*	*The Tiger*	*The Stallion*
Market Price per pair	$100	$195	$120	$250
Market Volume	5000	4000	8000	3000

The product line data that Sophie and George have collected are listed below:

*Style of Shoe*	*The Gazelle*	*The Swan*	*The Tiger*	*The Stallion*
Leather Cost	$15.50	$20.60	$25.10	$29.50
Sales Commission based on Sales Price	2%	2%	2%	2%

Labor Cost per pair is based on the hourly rate of $22.50 and the hours needed per pair determined in Perfection A.

*Shared Costs*
Depreciation on the Property, Plant & Equipment	$50,000
Salaries for Administrative Personnel	$150,000
Salaries for Plant Personnel	$86,200
Maintenance for the Plant	$45,000
Janitorial Costs	$30,000
Utilities and Property Taxes and Insurance	$45,000
	$406,200

Sophie and George have asked for your help to determine their breakeven point, and potential profitability as volumes continue to increase. As you answer their questions be sure to identify any assumptions you are making.

Include a Contribution Income Statement for a combined sales volume of 10,000 units total.

List any assumptions you are making about the Shared Costs.

Finally, prepare a Cost-Volume-Profit Graph for the sales mix analyzed. Plot the revenue, total cost, variable cost, fixed cost, profit area, and loss area from zero units to 10,000 units.