Tuff Kids Jeans Co. sells blue jeans wholesale to major retailers across the country. Each pair of jeans has a selling price of $30 and $21 in variable costs of goods sold. The company has fixed manufacturing costs of $1,200,000 and fixed marketing costs of $300,000. Sales commissions are paid to the wholesale sales reps at 5% of revenues. The company has an income tax rate of 25%.
1. How many jeans must Tuff Kids sell in order to break even?
2. How many jeans must the company sell in order to reach:
a. a target operating income of $450,000?
b. a net income of $450,000?
3. How many jeans would TuffKids have to sell to earn the net income in part 2b if (consider each requirement independently).
a. The contribution margin per unit increases by 10%
b. The selling price is increased to $32.50
c. The company outsources manufacturing to an overseas company increasing variable costs per unit by $2.00 and saving 60% of fixed manufacturing costs.