CLP is planning to go into the designer jeans business. They project the following costs for the first year of operation: Rental payments $1,500 per month Direct Labor $9.50 per hour Raw Materials $6 per pair of jeans Overhead $975 per week Interest on Capital $1,350 per month It takes 20 minutes of direct labor to assemble a pair of pants, and CLP sells his designer jeans for $39.50 a pair. How many pairs of jeans must be sold to break even the first year? (assume a 50 week year) If profits total $38,500 for the first year, what is CLP’s safety margin? After a successful first year, CLP foresees a decline in designer jeans demand as a result of a weakening economy. If CLP wants a break-even point of 2,300 units, how much of a reduction in fixed costs would be necessary? What three alternative methods are available for reducing the break-even point? Using each of these methods, what adjustments must be made to meet CLP’s break-even point of 2,300 units? Considering the uncertain demand conditions faced by CLP, which of the three methods for reducing break-even points is the most appropriate? Why?

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

CLP is planning to go into the designer jeans business. They project the following costs for the first year of operation:

It takes 20 minutes of direct labor to assemble a pair of pants, and CLP sells his designer jeans for $39.50 a pair.

How many pairs of jeans must be sold to break even the first year? (assume a 50 week year)
If profits total $38,500 for the first year, what is CLP’s safety margin?
After a successful first year, CLP foresees a decline in designer jeans demand as a result of a weakening economy.

If CLP wants a break-even point of 2,300 units, how much of a reduction in fixed costs would be necessary?