Profitabili Both footwear products Step One and Next Step -are popular selle How

Question

Profitabili Both footwear products Step One and Next Step -are popular selle However, their profitability needs to be analyzed to determine how many pairs of shoe for each product line in order to cover the costs of manufacturing the shoes. This informat in future plannin within operations to reduce costs rs for the Walk Fit Shoe Company. s must be sold ion will assist g so as to develop an effective pricing structure as well as to identify opportunities The investment in plant and equipment for each footwear product lines is $150,000. The cost of labor, aterials, and overhead equate to $50 per pair of the Step One shoes and $90 per pair of the Next Step shoes. A pa ir of the Step One shoes currently sells for $100. A pair of the Next Step shoes sells for $150. Team Analysis-Breakeven Analysis The following questions need to be answered to determine how many pairs of shoes for each product line need to be sold to cover the costs of manufacturing the shoes: 1) How many pairs of the Step One footwear product need to be sold to breakeven? 2) How many pairs of the Next Step footwear product need to be sold to breakeven? Profitability - Profit Maximization For both footwear product lines-the Step One shoe and the Next Step shoe- management has determined that they both require the same following operations: 1. Cutting and dyeing the material 2. Sewing 3. Finishing (attaching the soles, lacing, etc.) 4. Inspection The director of operations, planning, and development analyzed each of the operations and determined the production time requirements for each pair of shoes, summarized below:

Explanation / Answer

All amounts are in $ Particulars Step One Next Step Investment (To be recovered) 1,50,000.00 1,50,000.00 Sale value/pair            100.00            150.00 Less:Cost of manufacturing/pair              50.00              90.00 Contribution margin/pair              50.00              60.00 Break even=Fixed costs/Contribution        3,000.00        2,500.00 (150,000/50 & 150,000/60) Note: In the absence of complete informationit is assumed that cost of manufacturing (material,labor and overheads are varaible costs) And total investment needed to be recovered in a single period..accordingly it becomes fixed cost for the period and to be recovered Accordingly, 3000 & 2500 units (pairs) of stepone & next step to be sold respectively to reach break even

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