Break Even Point and Profit Analysis for Beckers Shoe Stores

a) What is the breakeven point (BEP) using Becker's original estimates on June 1? Please provide your answer in units. b) If the new manager implements the mid-June changes, how many units must Beckers sell to reach its revised profit objective? Is reaching the revised profit objective feasible given the constraints outlined above? Explain why or why not. c) What is the price that Beckers should charge customers to reach its revised profit objective for June, assuming it produces at its maximum capacity? Do you think it should change its price to the one you just calculated? Explain why or why not. d) Calculate the contribution margin ratio, expressed as a percentage, for the June original estimates and for the mid-June changes, both using the selling price provided in the case. How can Beckers increase its contribution margin without increasing price? e) Consider the changes made by the new general manager in mid-June. Overall, do you think the changes made are in line with Beckers' strategy? Explain why or why not. a) The company needs to sell 4,000 shoes in June to break even. b) The production capacity of 4,200 shoes, it is not feasible to reach the revised profit objective without increasing capacity. c) $479.33 per shoe d) To increase its contribution margin without increasing price, Beckers can reduce variable costs by finding ways to improve efficiency in the production process or negotiating better prices for labor or materials. e) The reduction in leather usage can help the company save money on materials in the Beckers

a) Breakeven Point Calculation

Breakeven Point (BEP) is the point at which total revenue equals total costs, resulting in zero profit. In this case, using Becker's original estimates on June 1, the company's BEP is 4,000 shoes. This means that Beckers must sell 4,000 shoes in June to cover all costs and break even.

b) Revised Profit Objective Analysis

If the new manager implements the mid-June changes, the revised profit objective is $75,000. However, with a production capacity of only 4,200 shoes, it is not feasible to reach the revised profit objective without increasing production capacity. The company would need to sell 4,727 shoes to reach the revised profit objective, which exceeds the maximum production capacity.

c) Price Adjustment for Profit Objective

To reach the revised profit objective for June, Beckers should charge $479.33 per shoe assuming it produces at maximum capacity. It is not advisable to change the price to this level as it may result in a decrease in demand due to higher pricing.

d) Contribution Margin and Improvement Strategies

The contribution margin ratio for the original estimates is 50% and for the mid-June changes is 57.25%. To increase the contribution margin without raising prices, Beckers can focus on reducing variable costs by improving operational efficiency or negotiating better deals on labor and materials.

e) Evaluation of Management Changes

The changes made by the new general manager, such as investing in technology, skill development, and reducing leather usage, are aligned with Beckers' strategy of reducing variable costs and increasing profitability. However, the impact of increased fixed costs should be monitored to ensure profitability is not compromised in the long run.

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