TOMS shoes specialise in making men’s and women’s shoes for independent retailers. The company has fixed costs of £170,000 per year.
Type of shoe
Men’s Selling price £85 Variable cost £58
Women’s Selling price £100 Variable cost £75

a. Determine the breakeven point (in units) for each type of shoe (men’s and women’s) independently.

b. Determine the sales revenue needed to reach the break-even point.

c. Determine the company’s annual profit, if 7,000 pairs of men’s shoes and 9,000 pairs of women’s shoes are sold.

Question

TOMS shoes specialise in making men’s and women’s shoes for independent retailers. The company has fixed costs of £170,000 per year. 
Type of shoe 	 	
Men’s  Selling price £85 	Variable cost £58 
Women’s 	Selling price  £100 	Variable cost £75 
 
a.	Determine the breakeven point (in units) for each type of shoe (men’s and women’s) independently.  
 
b.	Determine the sales revenue needed to reach the break-even point. 
 
c.	Determine the company’s annual profit, if 7,000 pairs of men’s shoes and 9,000 pairs of women’s shoes are sold.

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ To determine the breakeven point for men’s shoes, we use the formula: $ \text{Breakeven Point} = \frac{\text{Fixed Costs}}{\text{Selling Price} - \text{Variable Cost}} $. For men’s shoes, this becomes $ \frac{170,000}{85 - 58} = \frac{170,000}{27} $. ‖ ‖ step 2 ⋮ Calculating the breakeven point for men’s shoes gives us approximately $ 6296.30 $ pairs. Since we cannot sell a fraction of a shoe, we round up to $ 6297 $ pairs. ‖ ‖ step 3 ⋮ For women’s shoes, we apply the same formula: $ \frac{170,000}{100 - 75} = \frac{170,000}{25} $. ‖ ‖ step 4 ⋮ Calculating the breakeven point for women’s shoes gives us $ 6800 $ pairs. ‖ ‖ step 5 ⋮ To find the sales revenue needed to reach the breakeven point for men’s shoes, we calculate: $ 6297 \times 85 = 535,245 $ pounds. ‖ ‖ step 6 ⋮ For women’s shoes, the sales revenue needed is $ 6800 \times 100 = 680,000 $ pounds. ‖ ‖ step 7 ⋮ To determine the company’s annual profit, we calculate total revenue from sales: $ (7000 \times 85) + (9000 \times 100) = 595,000 + 900,000 = 1,495,000 $ pounds. ‖ ‖ step 8 ⋮ Finally, we subtract the fixed costs from total revenue to find profit: $ 1,495,000 - 170,000 = 1,325,000 $ pounds. ‖ ∻[a] Answer∻ ***B*** ∻[b] Answer∻ ***C*** ∻[c] Answer∻ ***D*** ∻Key Concept∻ ⚹Breakeven Analysis⚹ ∻Explanation∻ ⚹Breakeven analysis helps determine the number of units that must be sold to cover costs, allowing businesses to understand their financial viability.⚹◊What is the formula to calculate the breakeven point in units for a product?⍭ Generate me a similar question◊

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