FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Perfect Fit Jeans Co. sells blue jeans wholesale to major retailers across the country. Each pair of jeans has a selling price of 50 with 40 in variable costs of goods sold. The company has fixed manufacturing costs of 1500000 and fixed marketing costs of 300000. Sales commissions are paid to the wholesale sales reps at 5​% of revenues. The company has an income tax rate of ​20%. (include formulas)

How many jeans must Perfect Fit sell in order to break​ even?
  How many jeans must the company sell in order to reach
  A target operating income of$520,000​?

A net income of$520,000​?
  How many jeans would Perfect Fit have to sell to earn the net income in requirement above if​ (Consider each requirement​ independently.)
  The contribution margin per unit increases by 20​%
The selling price is increased to $52.00.
The company outsources manufacturing to an overseas​ company, increasing variable costs per unit by ​$3.00 and saving 70​% of fixed manufacturing costs.
Expert Solution
Check Mark
Step 1: Formulas

Break Even = Fixed Cost/Contribution margin per unit

To achieve Target operating income = (Fixed Cost + Target operating income)/Contribution margin per unit


To achieve Target Net income = (Fixed Cost + Target Net income)/Contribution margin per unit

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