Question

The next two questions refer to the following fictional financial statement from Katie's Kicks: Revenue: $500,000 Shoes: $250,000 Shoe boxes: $1,000 Advertising: $500 Rent: $1,000 Depreciation: $25 How many additional shoes would Katie's Kicks have to sell to cover a $25,000 investment in advertising and maintain their current contribution to the company, assuming they are currently selling 5,000 pairs of shoes

Answer 1

Answer:

502

Explanation:

In this question, we are asked to calculate the number of additional shoes to be sold to cover a $25,000 investment in advertising whilst also maintaining current contribution to the company.

Firstly, we calculate the sum of variable expenses;

This is the sum of shoe boxes and shoes = 1,000 + 250,000 = 251,000

Now, we proceed to get the contribution margin.

Mathematically, contribution margin = Revenue - Total variable expenses = 500,000 - 249,000 = 251,000

The contribution margin per part can be calculated as ;

Contribution Margin/currently selling pairs of shoes= 249,000/5000 = 49.8

The additional parts to be sold = Investment in advertising/contribution margin per shoes

= 25,000/49.8

= 502