Problem - The boot department of the Great Western Outfitters store is preparing to set sales goals for the upcoming year. Sally Brown, the department manager, is trying to determine what brands of boots to retain as part of the sales inventory. In particular, she is wondering about the value of continuing to sell Durango Boots. Going through past records, she retrieves the following information about the sales of Durango boots and asks you to help her with some calculations:
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Total Sales (1,000 pairs of boots)
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$500,000
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Variable Costs
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$300,000
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Fixed Costs
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$150,000
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Tax Rate
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25%
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Based on this information: Compute the Contribution Margin (CM), unit CM, and CM ratio.
If the average CM ratio for other brands is 35%, should Brown keep stocking Durango Boots? Why or Why not? Provide a rationale that demonstrates your understanding of how the technique is applied in practice.
Based on the Table from Problem 1: Help Sally compute the break-even point in units and in dollars.
What if any factors might she consider which have the potential to change her analysis and/or the assumptions underlying her analysis?
Based on the Table from Problem 1: How many pairs of boots (units) would the boot department need to sell to obtain a profit of $100,000?
How many pairs of boots (units) would the company have to sell to obtain an after tax income of $120,000?
What assumptions were essential to the accuracy of her results and to the analysis and conclusions drawn? Discuss what role HR data might play in arriving at these calculations. How do HR data impact decisions on sales volume and operational results?
Based on the Table from Problem 1: How much will income increase if the sales go up by 250 units? (You can ignore taxes for this problem.)
How much will income increase if the store expects sales to go up by $25,000? (ignoring taxes).
Using these figures: Determine the sales mix, CM by product and in total, the CM ratio by product and in total, and the net income (ignore taxes).
Calculate the break-even point in dollars in total and by product.
Prepare a chart, such as example 12 on page 67, to help you with your answer. Use three decimal places for the percentages. For example, .275 would be 27.5%
Based on the Table from Problem 5: What is the margin of safety if the company projects sales at $400,000 and the break-even point is $250,000?