Problem 3 The recently opened Hike-N-Boots Company is considering producing either: 1. Light weight hiking boots for occasional campers, or 2. Heavy-duty hiking boots for the more demanding hikers. With their current facilities, the company is capable of producing no more than 20,000 pairs of the light-weight boot or no more than 18,000 pairs of the heavy-duty style. Their sales department estimates that, in the current year, they will sell as many as 10,500 pairs of either boot style. However, they do not intend to sell both. Cost and selling price information for the boots are: 1. Light weight style: a. Selling price - $82 b. Variable production cost $52.80 c. Fixed production cost $280,800 2. Heavy-duty style: a. Selling price - $90 b. Variable production cost - $56.20 c. Fixed production cost - $340,000 Required: (For this problem, you should ignore income tax implications) Determine the number of units and total revenue amounts for the light-weight boot style in order а. to achieve break-even. b. Determine the number of units and total revenue amount for the heavy-duty boot style in order to achieve break-even c. Assuming the company estimates 10,500 units of boot sales, Determine the operating profit and operating leverage for the light-weight boot style. Determine the operating profit and operating leverage for the heavy-weight boot style. d. Determine the level of sales at which Hike-N-Boots Company will generate the same operating i. ii. profit (or loss) regardless of which style of boot they choose to sell. e. Given your observations from a-d above, what style of boot do you recommend that Hike-N-Boots Company produce and sell? In reaching your conclusion, explain your assumptions and the factors that you considered.
Problem 3 The recently opened Hike-N-Boots Company is considering producing either: 1. Light weight hiking boots for occasional campers, or 2. Heavy-duty hiking boots for the more demanding hikers. With their current facilities, the company is capable of producing no more than 20,000 pairs of the light-weight boot or no more than 18,000 pairs of the heavy-duty style. Their sales department estimates that, in the current year, they will sell as many as 10,500 pairs of either boot style. However, they do not intend to sell both. Cost and selling price information for the boots are: 1. Light weight style: a. Selling price - $82 b. Variable production cost $52.80 c. Fixed production cost $280,800 2. Heavy-duty style: a. Selling price - $90 b. Variable production cost - $56.20 c. Fixed production cost - $340,000 Required: (For this problem, you should ignore income tax implications) Determine the number of units and total revenue amounts for the light-weight boot style in order а. to achieve break-even. b. Determine the number of units and total revenue amount for the heavy-duty boot style in order to achieve break-even c. Assuming the company estimates 10,500 units of boot sales, Determine the operating profit and operating leverage for the light-weight boot style. Determine the operating profit and operating leverage for the heavy-weight boot style. d. Determine the level of sales at which Hike-N-Boots Company will generate the same operating i. ii. profit (or loss) regardless of which style of boot they choose to sell. e. Given your observations from a-d above, what style of boot do you recommend that Hike-N-Boots Company produce and sell? In reaching your conclusion, explain your assumptions and the factors that you considered.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Problem 3
The recently opened Hike-N-Boots Company is considering producing either:
1. Light weight hiking boots for occasional campers, or
2. Heavy-duty hiking boots for the more demanding hikers.
With their current facilities, the company is capable of producing no more than 20,000 pairs of the
light-weight boot or no more than 18,000 pairs of the heavy-duty style. Their sales department
estimates that, in the current year, they will sell as many as 10,500 pairs of either boot style. However,
they do not intend to sell both.
Cost and selling price information for the boots are:
1. Light weight style:
a. Selling price - $82
b. Variable production cost - $52.80
Fixed production cost - $280,800
с.
2. Heavy-duty style:
a. Selling price - $90
b. Variable production cost - $56.20
Fixed production cost - $340,000
С.
Required:
(For this problem, you should ignore income tax implications)
Determine the number of units and total revenue amounts for the light-weight boot style in order
а.
to achieve break-even.
b. Determine the number of units and total revenue amount for the heavy-duty boot style in order to
achieve break-even
c. Assuming the company estimates 10,500 units of boot sales,
Determine the operating profit and operating leverage for the light-weight boot style.
Determine the operating profit and operating leverage for the heavy-weight boot style.
d. Determine the level of sales at which Hike-N-Boots Company will generate the same operating
i.
ii.
profit (or loss) regardless of which style of boot they choose to sell.
e. Given your observations from a-d above, what style of boot do you recommend that Hike-N-Boots
Company produce and sell? In reaching your conclusion, explain your assumptions and the factors
that you considered.
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