Question 3 Zappo Shoe Company sells only one style of shoes for $85 each. The co

Question

Question 3 Zappo Shoe Company sells only one style of shoes for $85 each. The company's contribution format income statement for the most recent year is given below: Volume 25,000 shoes Total Per Unit Sales $2,125,000 $85 Variable expenses 375,000 15 Contribution Margin 1,750,000 $70 Fixed expenses 785,000 Net Operating Income $965,000 Required: (Show your work) a) Compute the breakeven sales in units (shoes). b) Assume that next year management wants the company to earn a profit of at least $1,250,000. How many shoes will the company have to sell to meet this target profit? c) Refer to the original data. Compute the company's margin of safety percentage.

Explanation / Answer

CALCULATION OF CONTRIBUTION MARGIN PER UNIT PARTICULARS AMOUNT Selling Price Per Unit= $                           85 Less: Variable Cost Per Unit $                           15 Contribution Margin Per Unit $                           70 Contribution Margin % 82% ($ 15 / $ 85 X 100) CALCULATION OF THE BREAK EVEN POINT IN UNITS Break Even point =      Fixed Cost / Contribution Margin Per Unit Break Even point =       Fixed Cost = $               7,85,000 Divide By "/" By Contribution Margin Per Unit = $                           70 Break Even point (Rounded to nearest next unit)       11214.29 Units (11214.29 is rounded to 11,215 units) Answer = 11,214.29 or 11215 Shoes Answer = 2) Target Profit = ( Fixed Cost + target Income ) / Contribution Margin per unit Target Profit = Fixed Cost = $               7,85,000 Add: "+ " Target Income = $             12,50,000 Equal to = $             20,35,000 Divide By "/"By Contribution marrgin per unit $                           70 Equal to =                 29,071.43 Units Rounded to next nearest unit                 29,072.00 Shoes Answer = 3) : Margin of Safety = (Current Sales - Break even point) / Current Sales Margin of Safety = Actual Sales =(25,000 Shoes X $ 85) $             21,25,000 Less: Break Even Point (11,214.29 X$85) = $               9,53,214 $             11,71,786 Divide by "/" By Current Sales $             21,25,000 Margin of Safety =                       0.5514 Margin of Safety in percetage = 55.14%

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.