Reference no: EM131810572

Problem

Tuff Kids Jeans Co. sells blue jeans wholesale to major retailers across the country. Each pair of jeans has a selling price of $30 with $21 in variable costs of goods sold. The company has fixed manufacturing costs of $1,200,000 and fixed marketing costs of $300,000. Sales commissions are paid to the wholesale sales reps at 5% of revenues. The company has an income tax rate of 25%.

1. How many jeans must Tuff Kids sell in order to break even?

2. How many jeans must the company sell in order to reach:

a. target operating income of $450,000?
b. a net income of $450,000?

3. How many jeans would Tuff Kids have to sell to earn the net income in part 2b if (consider each requirement independently)

a. The contribution margin per unit increases by 10%
b. The selling price is increased to $32.50
c. The company outsources manufacturing to an overseas company increasing variable costs per unit by $2.00 and saving 60% of fixed manufacturing costs.