The boot department of the Great Western Outfitters
Question: The boot department of the Great Western Outfitters store is preparing to set sales goals for the upcoming year. Sally Brown, the department manager, is trying to determine what brands of boots to retain as part of the sales inventory. In particular, she is wondering about the value of continuing to sell Durango Boots. Going through past records, she retrieves the following information about the sales of Durango boots and asks you to help her with some calculations:
Total Sales (1,000 pairs of boots) | $500,000 |
Variable Costs | $300,000 |
Fixed Costs | $150,000 |
Tax Rate | 25% |
Based on this information:
Compute the Contribution Margin (CM), unit CM, and CM ratio. IN order to earn full credit for your work, plese remember to include detailed step by step calculations with your response .
CM = S – VC = $500,000 – 300,000 = ???
Unit CM = p – v = ($500,000/1,000) – ($300,000/1,000) = ???
CM Ratio = CM/S = ???
If the average CM ratio for other brands is 35%, should Brown keep stocking Durango Boots? Why or Why not? Provide a rationale that demonstrates your understanding of how the technique is applied in practice.
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Rating:
/5
Solution: The boot department of the Great Western Outfitters