Cozy Mitts produces heated motorcycle gloves. The company has fixed expenses of $125,000 and variable expenses of $75 per pair. Each pair sells for $125. If Cozy Mitts can decrease it variable costs to $60 per pair by increasing its fixed expenses to $160,000 how many pairs will it have to sell to generate $100,000 operating income?

Question

Quizplus · Accepted Answer

To find the number of pairs needed to generate $100,000 in operating income with the new cost structure, we use the formula for calculating the break-even point in units, adjusted for desired profit: $ \text{Units} = \frac{\text{Fixed Costs} + \text{Desired Profit}}{\text{Price per Unit} - \text{Variable Cost per Unit}} $.With the new fixed expenses of $160,000 and a decrease in variable costs to $60 per pair, the calculation is as follows:$$ \text{Units} = \frac{160,000 + 100,000}{125 - 60} = \frac{260,000}{65} = 4,000 $$Therefore, Cozy Mitts needs to sell 4,000 pairs of gloves to generate $100,000 in operating income with the new cost structure.

Cozy Mitts Produces Heated Motorcycle Gloves