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Birkenstock is considering adding a new Big Buckle sandal to its current product offerings. Birkenstock expects to price the shoes at $125 per pair. The variable costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead. The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000 manufacturing plant manager salary; $350,000 depreciation expense on manufacturing equipment; and $50,000 other miscellaneous fixed costs. • Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle sandals in 2021. What is Birkenstock's expected 2021 profit on this product? Type your answer in the first blank below. Birkenstock's marketing team is considering two possibilities to increase profits on the Big Buckle sandals. Treat each alternative as an independent option (i.e., evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair). Calculate the expected profit for each option and indicate whether Birkenstock should make the change. OPTION 1: Birkenstock's marketing team estimates that if they increase the product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals. Use this information to answer the following questions (type your answers in blanks 2 and 3 below). • What is Birkenstock's expected profit if they increase the selling price to $150 per pair? • Does this analysis suggest that Birkenstock should increase the selling price from $125 to $150? Indicate YES or NO.

Birkenstock is considering adding a new Big Buckle sandal to its current product offerings. Birkenstock expects to price the shoes at $125 per pair. The variable costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead. The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000 manufacturing plant manager salary; $350,000 depreciation expense on manufacturing equipment; and $50,000 other miscellaneous fixed costs. • Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle sandals in 2021. What is Birkenstock's expected 2021 profit on this product? Type your answer in the first blank below. Birkenstock's marketing team is considering two possibilities to increase profits on the Big Buckle sandals. Treat each alternative as an independent option (i.e., evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair). Calculate the expected profit for each option and indicate whether Birkenstock should make the change. OPTION 1: Birkenstock's marketing team estimates that if they increase the product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals. Use this information to answer the following questions (type your answers in blanks 2 and 3 below). • What is Birkenstock's expected profit if they increase the selling price to $150 per pair? • Does this analysis suggest that Birkenstock should increase the selling price from $125 to $150? Indicate YES or NO.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Birkenstock is considering adding a new Big Buckle sandal to its current product offerings. Birkenstock expects to price the shoes at $125 per pair. The variable costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead. The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000 manufacturing plant manager salary; $350,000 depreciation expense on manufacturing equipment; and $50,000 other miscellaneous fixed costs. • Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle sandals in 2021. What is Birkenstock's expected 2021 profit on this product? Type your answer in the first blank below. Birkenstock's marketing team is considering two possibilities to increase profits on the Big Buckle sandals. Treat each alternative as an independent option (i.e., evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair). Calculate the expected profit for each option and indicate whether Birkenstock should make the change. OPTION 1: Birkenstock's marketing team estimates that if they increase the product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals. Use this information to answer the following questions (type your answers in blanks 2 and 3 below). • What is Birkenstock's expected profit if they increase the selling price to $150 per pair? • Does this analysis suggest that Birkenstock should increase the selling price from $125 to $150? Indicate YES or NO.
Transcribed Image Text:Birkenstock is considering adding a new Big Buckle sandal to its current product offerings. Birkenstock expects to price the shoes at $125 per pair. The variable costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead. The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000 manufacturing plant manager salary; $350,000 depreciation expense on manufacturing equipment; and $50,000 other miscellaneous fixed costs. • Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle sandals in 2021. What is Birkenstock's expected 2021 profit on this product? Type your answer in the first blank below. Birkenstock's marketing team is considering two possibilities to increase profits on the Big Buckle sandals. Treat each alternative as an independent option (i.e., evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair). Calculate the expected profit for each option and indicate whether Birkenstock should make the change. OPTION 1: Birkenstock's marketing team estimates that if they increase the product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals. Use this information to answer the following questions (type your answers in blanks 2 and 3 below). • What is Birkenstock's expected profit if they increase the selling price to $150 per pair? • Does this analysis suggest that Birkenstock should increase the selling price from $125 to $150? Indicate YES or NO.
OPTION 2: The marketing team estimates that if Birkenstock spends an additional $25,000 on promotion (via fees to Instagram influencers) per year, they will sell 25% more sandals. To meet this extra demand, Birkenstock would need to purchase additional manufacturing equipment that would lead to $50,000 extra depreciation cost per year. Assume that Birkenstock prices the sandals at $125 per pair. Use this information to answer the following two questions (type your answers in blanks 4 and 5 below). • What is Birkenstock's expected profit if they market through Instagram influencers? • Does this analysis suggest that Birkenstock should market through Instagram influencers? Indicate YES or NO.
Transcribed Image Text:OPTION 2: The marketing team estimates that if Birkenstock spends an additional $25,000 on promotion (via fees to Instagram influencers) per year, they will sell 25% more sandals. To meet this extra demand, Birkenstock would need to purchase additional manufacturing equipment that would lead to $50,000 extra depreciation cost per year. Assume that Birkenstock prices the sandals at $125 per pair. Use this information to answer the following two questions (type your answers in blanks 4 and 5 below). • What is Birkenstock's expected profit if they market through Instagram influencers? • Does this analysis suggest that Birkenstock should market through Instagram influencers? Indicate YES or NO.
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