Ace Shoe Company sells heel replacement kits for men's shoes.It has fixed costs of $6 million and unit variable costs of $5 per pair.Ace is considering a switch from manual labour to an automated process.New equipment would cost an additional $4 million per year while lowering variable costs by $3 per shoe repair kit.How many kits would Ace have to sell at $15 per pair to make $2 million in profits in the next year with the automated process?

Question

Quizplus · Accepted Answer

To find the answer, we can use the following formula:

Profit = (Selling Price * Quantity) - (Variable Costs * Quantity) - Fixed Costs - New Equipment Costs

We want to find how many kits Ace needs to sell at $15 per pair to make $2 million in profits in the next year with the automated process. We know the fixed costs are $6 million and the new equipment costs are $4 million.

Plug in the given values:

$2,000,000 = ($15 * Q) - ($5 - $3) * Q - $6,000,000 - $4,000,000

Simplify:

$2,000,000 = $15Q - $2Q - $10,000,000
$12,000,000 = $13Q
Q = 923,077

Therefore, Ace would need to sell 923,077 kits to make $2 million in profits in the next year with the automated process. The answer is D.

Ace Shoe Company Sells Heel Replacement Kits for Men's Shoes