Question: CVP analysis, sensitivity analysis. Perfect Fit Jeans Co. sells blue jeans wholesale to major retailers across the country. Each pair of jeans has a selling price of $50 with $35 in variable costs of goods sold. The company has fixed manufacturing costs of $2,250,000 and fixed marketing costs of $250,000. Sales commissions are paid to the wholesale sales reps at 10% of revenues. The company has an income tax rate of 20%.
1. How many jeans must Perfect Fit sell in order to break even?
2. How many jeans must the company sell in order to reach:
a. a target operating income of $420,000?
b. a net income of $420,000?
3. How many jeans would Perfect Fit have to sell to earn the net income in requirement 2b if: (Consider each requirement independently.)
a. the contribution margin per unit increases by 10%.
b. the selling price is increased to $51.50.
c. the company outsources manufacturing to an overseas company increasing variable costs per unit by $2.00 and saving 70% of fixed manufacturing costs.