A shoe company designs and manufactures a variety of shoes including their two top sellers, wedge heels and stilettos. The company has been debating a new advertising campaign in an effort to ramp up sales for these offerings. In order to decide, they feel that getting a handle on their costing information is critical. The company took the advice of their head accountant and implemented an operation costing system that cost them extra on the front end. The company has calculated the following predetermined cost for each of the key processes:
Each pair of wedge heels has a selling price of $25 and Direct Materials (DM) cost of $10. Each pair of stilettos has a selling price of $40 and DM cost of $12. A recent batch of 130 stilettos was sold to a high-end retailer. A second batch containing 85 wedge heels was sold to a bargain shoe store. What is the gross profit percentage for each batch? (Round calculations to two decimal places.)

Question

A shoe company designs and manufactures a variety of shoes including their two top sellers, wedge heels and stilettos. The company has been debating a new advertising campaign in an effort to ramp up sales for these offerings. In order to decide, they feel that getting a handle on their costing information is critical. The company took the advice of their head accountant and implemented an operation costing system that cost them extra on the front end. The company has calculated the following predetermined cost for each of the key processes:
 Each pair of wedge heels has a selling price of $25 and Direct Materials (DM) cost of $10. Each pair of stilettos has a selling price of $40 and DM cost of $12. A recent batch of 130 stilettos was sold to a high-end retailer. A second batch containing 85 wedge heels was sold to a bargain shoe store. What is the gross profit percentage for each batch? (Round calculations to two decimal places.)

Quizplus · Accepted Answer

This question requires calculating the total cost of each batch using operational costing. For the batch of 130 stilettos, calculate the cost as follows: (130 × $2.26) + (130 × $2.15) + (130 × $0.89) + (130 × $1.58) + (130 × $12.00) = $293.80 + $279.50 + $115.70 + $205.40 + $1,560.00 = $2,454.40. Now, calculate the total sales amount for that batch: 130 × $40.00 = $5,200. Next, calculate the gross profit: $5,200 - $2,454.40 = $2,745.60. Lastly, calculate the gross profit percentage: $2,745.60/$5,200 = 52.8%. For the batch of 85 wedge heels, calculate the cost as follows: (85 × $2.26) + (85 × $2.15) + (85 × $0.34) + (85 × $0.42) + (85 × $1.58) + (85 × $10.00) = $192.10 + $182.75 + $28.90 + $35.70 + $134.30 + $850.00 = $1,423.75. Now, calculate the total sales amount: 85 x $25.00 = $2,125.00. Next, calculate the gross profit: $2,125.00 - $1,423.75 = $701.25. Lastly, calculate the gross profit percentage: $701.25/$2,125 = 33.00%.

A Shoe Company Designs and Manufactures a Variety of Shoes