FLEXO markets shoes under its brand name. Recently it developed a new product.The investment in the product was $1.5 million. The company expected to depreciate the investments over the TEN-year-period. Annual depreciation is used as an element of fixed costs. The project overhead cost per year was $350,000. The labor cost was $30 per pair and material cost was $20 per pair. The average price of similar shoes in the market is $200. If the wholesale/retail trade margins together 50%, what should be FLEXO's price at which it will sell its shoes to the wholesale/retail trade?

What would be the break-even quantity at this price? At this price how many shoes will FLEXO have to sell to make profit before tax of $1,000,000 ? If the variable cost were to change (INCREASE) by 10%, calculate the break-even quantity and the quantity required to achieve the $1,000,000 profit. If the total size of the market is 100,000 units, what would be the market share required to achieve break-even quantity and the profit target?

Solution Preview

FLEXO markets shoes under its brand name. Recently it developed a new product. The investment in the product was $1.5 million. The company expected to depreciate the investments over the TEN-year-period. Annual depreciation is used as an element of fixed costs. The project overhead cost per year was $350,000. The labor cost was $30 per pair and material cost was $20 per pair. The average price of similar shoes in the market is $200. If the wholesale/retail trade margins together 50%, what should be FLEXO's price at which it will sell its shoes to the wholesale/retail trade?
Solution
Cost of labor and material comes under variable cost.
Total cost = Fixed costs + Variable cost (x), where "x" is the number of shoes.
Given: Annual depreciation is used as an ...

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