Break Even Point and Profit Analysis for Beckers Shoe Stores
a) Breakeven Point Calculation
Breakeven Point (BEP) is the point at which total revenue equals total costs, resulting in zero profit. In this case, using Becker's original estimates on June 1, the company's BEP is 4,000 shoes. This means that Beckers must sell 4,000 shoes in June to cover all costs and break even.
b) Revised Profit Objective Analysis
If the new manager implements the mid-June changes, the revised profit objective is $75,000. However, with a production capacity of only 4,200 shoes, it is not feasible to reach the revised profit objective without increasing production capacity. The company would need to sell 4,727 shoes to reach the revised profit objective, which exceeds the maximum production capacity.
c) Price Adjustment for Profit Objective
To reach the revised profit objective for June, Beckers should charge $479.33 per shoe assuming it produces at maximum capacity. It is not advisable to change the price to this level as it may result in a decrease in demand due to higher pricing.
d) Contribution Margin and Improvement Strategies
The contribution margin ratio for the original estimates is 50% and for the mid-June changes is 57.25%. To increase the contribution margin without raising prices, Beckers can focus on reducing variable costs by improving operational efficiency or negotiating better deals on labor and materials.
e) Evaluation of Management Changes
The changes made by the new general manager, such as investing in technology, skill development, and reducing leather usage, are aligned with Beckers' strategy of reducing variable costs and increasing profitability. However, the impact of increased fixed costs should be monitored to ensure profitability is not compromised in the long run.