Energy Foot buys hiking socks for

$6 a pair and sells them for

$10. Monthly fixed costs are $20,000

(for sales volumes between 0 and 10,000

pairs), resulting in a break-even point of

5,000 units. Assume that

Energy Foot has been selling 10,000

pairs of socks per month.

Requirement 1.

What is Energy Foot's current margin of safety in units, in sales dollars, and as a percentage? Explain the results.

Begin by identifying the formula to compute the margin of safety in units.

Expected sales in units Break-even sales in units Margin of safety in units

The margin of safety in units is 5000

Next, identify the formula to compute the margin of safety in dollars.

Expected sales in dollars Break-even sales in dollars Margin of safety in dollars

The margin of safety in dollars is $ 50000

Now identify the formula to compute the margin of safety as a percentage.

Margin of safety Margin of safety in unit Expected sales in units Margin of Safety as a percentage

(Round the percentage to the nearest hundredth percent, X.XX%.)

The margin of safety percentage is 50%.

Requirement 2.

At this level of sales, what is Energy

Foot's operating leverage factor? If volume declines by

99% due to increasing competition, by what percentage will the company's operating income decline?

Begin by identifying the formula to compute the operating leverage factor at the target level of operating income.

Contribution margin Operating income Operating leverage factor

(Round your answer to two decimal places.)

The operating leverage factor is 2.00

(Round the percentage to the nearest hundredth percent, X.XX%.)

-If volume decreases 9%, operating income will decrease 18%

Requirement 3.

Competition has forced

Energy Foot to lower its sales price to

$9 a pair. How will this affect

Energy's

break-even point?

(Round your answer up to the next whole number.)

Energy's new break-even point increases to 5000 units.

**Requirement 4. **To compensate for the lower sales price, Energy Foot wants to expand its product line to include men's dress socks. Each pair will sell for $ 7.00

$7.00 and cost $2 from the supplier. Fixed costs will not change. Energy expects to sell four pairs of dress socks for every one pair of hiking socks (at its new $ 9 sales price). What is Energy's weighted-average contribution margin per unit? Given the 4:1 sales mix, how many of each type of sock will it need to sell to break-even?

Complete the following table to compute the weighted-average contribution margin per unit.** **

** Hiking socks Dress socks Total**

Sale price per unit 9.00 7.00

Less:

Variable cost per unit 6.00 2.00

Contribution margin per unit 3.00 5.00

Sales mix 1 4 5

Contribution Margin 3.00 20.00 23.00

Weighted-average contribution margin per unit 4.60

Given the 4:1 sales mix, how many of each type of sock will it need to sell to break-even?

(Round *only* the new target sales in units *up* to the next whole number. Then round the allocation of hiking and dress socks to the nearest whole number.)

The new target sales in units is___________?

The company will need to sell____________?

pairs of the hiking socks and____________? pairs of the dress socks.

Hi- I just need to know the FORMULAS to solve these last three questions in Requirement 4. I answered everything else.

Thank you:):):)

#### Top Answer

New target sales in units (break-even) =... View the full answer