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Shoes to sell:
Purchasing price per unit $ 80
Selling price per unit $ 90
1. How many pairs of shoes (per week)
should you sell in order to start making ? Pairs of shoes
profit? sold (Q)
Cost drivers: Revenue
- VC
Relevant for the question: - FC
= Operating Income
1 2
= UCM 3. You have to pay 25% tax on profits from
Unit contribution margin shoes sold. You still want to have $240 per
Q= month after tax? What is Q now?
2.
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IV. MULTI-PRODUCT CASE
3. In addition to shoes you start selling
sneakers
Sneakers to sell:
Purchasing price per unit $ 50
4. We ignored Seling price per unit $ 55
You noticed that on average you sell
1 pair of sneakers for 2 pairs of shoes sold
III. BREAK-EVEN REVENUE Called Product Mix
You have to pay 25% Tax on sales. You still
UCM% = UCM / USP want to have $240 per month after tax? How
meaning? many sneakers and shoes should we sell?
Break-Even Point (BEP)
Q=
Break-Even Revenue
Revenue =
NB:
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V. SENSITIVITY ANALYSIS (BRIEFS)
1. Sensitivity analysis
Look at % changes in Operating income
if you change USP, UVC, FC, and
Product Mix by certain %
pp. 69-71
2. Operating leverage
You income is more sensitive to volume
changes when you have high FC to VC
ratio = riskier company
(Similar to financial leverage)
pp. 72-73
3. Margin of Safety
= Actual Units Sold - BEP
p. 71
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