Question 3. Sandals Limited makes high quality hand-made shoes. Each pair requires £60 of material and will take 2 hours of labour to be made at an hourly rate of £15. The labour is all on such contracts that if they do not work for any reason, they are not paid. The shoes are sold to a number of boutiques for £120 each pair. The fixed costs of operating the workshop for a month amount to £3,250. The company expects to sell 210 pairs per month. a) What is the break-even point both in units and in sales revenue for the business? b) How much is the annual profit? c) Calculate the margin of safety as a percentage of expected level of sales and briefly explain what it means d) Would it be worth to increase the selling price of each pair of shoes by £10 if it leads to a decrease of 20% in demand for the shoes? What will be the new annual profit? e) Outline 4 of the main limitations of break-even analysis
Question 3. Sandals Limited makes high quality hand-made shoes. Each pair requires £60 of material and will take 2 hours of labour to be made at an hourly rate of £15. The labour is all on such contracts that if they do not work for any reason, they are not paid. The shoes are sold to a number of boutiques for £120 each pair. The fixed costs of operating the workshop for a month amount to £3,250. The company expects to sell 210 pairs per month. a) What is the break-even point both in units and in sales revenue for the business? b) How much is the annual profit? c) Calculate the margin of safety as a percentage of expected level of sales and briefly explain what it means d) Would it be worth to increase the selling price of each pair of shoes by £10 if it leads to a decrease of 20% in demand for the shoes? What will be the new annual profit? e) Outline 4 of the main limitations of break-even analysis
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