The following details relate to a shop that currently sells 25,000 pairs of shoes annually.

K’000

Selling price per pair of shoes 40

Purchase cost per pair of shoes 25

Total annual fixed costs

K’000

Salaries 100,000

Advertising 40,000

Other fixed expenses 100,000

You are required:

Answer each part independently of data contained in other parts of the requirement.

1. Calculate the break-even point and margin of safety in the number of pairs of shoes sold.
2. Assume that 20,000 pairs of shoes were sold in a year. Calculate the shop’s net income (or loss).
3. If a selling commission of K2,000 per pair of shoes sold was to be introduced, how many pairs of shoes would need to be sold in a year in order to earn a net income of K10m?
4. Assume that for next year an additional advertising campaign costing K20m is proposed, whilst at the same time selling prices are to be increased by 12%.
5. Required: 
6. What would be the break-even point in a number of pairs of shoes? 

Answer rating: 100% (QA)

A Break even point3 fixed costcontribution per unit 2400000001500016000 pair of shoes Fixed cost sal... View the full answer