Question

The next three questions refer to Jimmy Choo shoes, who sells 100,000 pairs of shoes to boutiques across the country:

The following cost information pertains to the shoes

Leather and metals: $25/pair
Shoe boxes: $1/pair
Shoemaker wages: $10/pair
Advertising & promotion: $200,000
Executive Salaries $300,000
Selling price to boutique: $100.00

a. What is the per unit gross marketing contribution?

1. 100%
2. 62%
3. 64%
4. None of the above

b. If they decided they wanted to invest in a $75,000 advertising campaign in the hopes of generating more sales, how many more pairs of shoes would they have to sell to maintain their current contribution to the organization?

1. 1,210
2. 925
3. 1,172
4. None of the above

c. By what percent does this change in sales represent?

1. 0.93%
2. 1.21%
3. 1.17%
4. None of the above

Answer 1

Answer:

Jimmy Choo

a. 4. None of the above

b. 3. 1,172

c. 4. None of the above

Explanation:

1) Data and Calculations:

Leather and metals: $25/pair

Shoe boxes:                $1/pair

Shoemaker wages:  $10/pair

Variable costs =       $36/pair

Selling price to boutique: $100.00

Contribution = $64/pair

2) Fixed Costs and Profit:

Advertising & promotion: $200,000

Executive Salaries            $300,000

Total fixed costs =            $500,000

Net profit =                        $140,000

3) Per unit gross marketing contribution:

Marketing cost per unit = $2 ($200,000/100,000 units)

Gross marketing contribution = $64/$2 = 3200%

4) Increase fixed costs by $75,000 to $575,000

Sales unit to sell = Fixed costs + profit/contribution margin per unit

= $575,000 + 140,000 /$64

= 1,172

5) Change in sales:

Change = 1,172 - 1,000 = 172

Percentage change = 172/1,000 x 100 = 17.2%

Answer 2

Jimmy Choo is the most famous designer and famed for his handcrafted shoes.

Given data:

• Leather and metals = $25/pair

• Shoe-boxes = $1/pair

• Wage of shoemaker = $10/pair

• Variable pricing=   $36/pair

• Selling price = $100.00

• Contribution = $64/pair

a. Option 4. None of the above

Per unit gross marketing contribution can be explained by:

• Marketing cost per unit = $\dfrac{\ 200,000}{100,000 \text{units}} = \ 2$

• Gross marketing contribution = $\dfrac{\ 64}{\ 2} \times 100\% = 3200\%$

b. Option 3. 1,172

• Advertising & promotion: $200,000

• Executive Salaries = $300,000

• Total fixed costs = $500,000

• Net profit = $140,000

Fixed cost increased by $75,000 to $575,000

$\text{Sales unit to sell} & = \text{Fixed costs} +\dfrac{\text{profit}}{\text{contribution margin per unit}}$

$\text{Sales unit to sell} & = \text{\ 575,000} +\dfrac{\text{140,000}}{\text{\ 64}}$

= 1,172 units

c. Option 4. None of the above

Change in sales can be estimated by:

Change = 1,172 - 1,000 = 172

$\text{Percentage change} = \dfrac{172}{1,000 } \times 100 = 17.2 \; \%$

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