Right Fit Jeans Co. sells blue jeans wholesale to major retailers across the country. Each pair of jeans has a selling price of $40 with $30 in variable costs. The company has fixed manufacturing costs of $1,050,000 and fixed marketing costs of $150,000. Sales commissions are paid to the wholesale sales reps at 10% of revenues. The company has an income tax rate of 20%. For each question below, show your computations. Ignoring income tax, how many jeans must Right Fit sell in order to break even? How many jeans must the company sell in order to reach A target operating income of $300,000 ignoring taxes? A net income of $300,000 taking taxes into consideration? How many jeans would Right Fit have to sell to earn the net income in requirement 2b if (Consider each requirement independently.) The contribution margin per unit increases by 20%. The selling price is increased to $45. The company outsources manufacturing to an overseas company, increasing variable costs per unit by $1.00 and saving 60% of fixed manufacturing costs.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Problem 1
Right Fit Jeans Co. sells blue jeans wholesale to major retailers across the country. Each pair of jeans has a selling price of $40 with $30 in variable costs. The company has fixed
- Ignoring income tax, how many jeans must Right Fit sell in order to break even?
- How many jeans must the company sell in order to reach
- A target operating income of $300,000 ignoring taxes?
- A net income of $300,000 taking taxes into consideration?
- How many jeans would Right Fit have to sell to earn the net income in requirement 2b if (Consider each requirement independently.)
- The contribution margin per unit increases by 20%.
- The selling price is increased to $45.
- The company outsources manufacturing to an overseas company, increasing variable costs per unit by $1.00 and saving 60% of fixed manufacturing costs.
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