Birkenstock is considering adding a new Big Buckle sandal to its current product offerings. Birkenstock expects to price the shoes at $125 per pair. The variable costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead. The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000 manufacturing plant manager salary; $350,000 depreciation expense on manufacturing equipment; and $50,000 other miscellaneous fixed costs. • Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle sandals in 2021. What is Birkenstock's expected 2021 profit on this product? Type your answer in the first blank below. Birkenstock's marketing team is considering two possibilities to increase profits on the Big Buckle sandals. Treat each alternative as an independent option (i.e., evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair). Calculate the expected profit for each option and indicate whether Birkenstock should make the change. OPTION 1: Birkenstock's marketing team estimates that if they increase the product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals. Use this information to answer the following questions (type your answers in blanks 2 and 3 below). • What is Birkenstock's expected profit if they increase the selling price to $150 per pair? • Does this analysis suggest that Birkenstock should increase the selling price from $125 to $150? Indicate YES or NO.
Birkenstock is considering adding a new Big Buckle sandal to its current product offerings. Birkenstock expects to price the shoes at $125 per pair. The variable costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead. The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000 manufacturing plant manager salary; $350,000 depreciation expense on manufacturing equipment; and $50,000 other miscellaneous fixed costs. • Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle sandals in 2021. What is Birkenstock's expected 2021 profit on this product? Type your answer in the first blank below. Birkenstock's marketing team is considering two possibilities to increase profits on the Big Buckle sandals. Treat each alternative as an independent option (i.e., evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair). Calculate the expected profit for each option and indicate whether Birkenstock should make the change. OPTION 1: Birkenstock's marketing team estimates that if they increase the product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals. Use this information to answer the following questions (type your answers in blanks 2 and 3 below). • What is Birkenstock's expected profit if they increase the selling price to $150 per pair? • Does this analysis suggest that Birkenstock should increase the selling price from $125 to $150? Indicate YES or NO.
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 4EB: Dimitri Designs has capacity to produce 30,000 desk chairs per year and is currently selling all...
Related questions
Question
Transcribed Image Text:Birkenstock is considering adding a new Big Buckle sandal to its current product
offerings. Birkenstock expects to price the shoes at $125 per pair. The variable
costs to produce one pair are estimated to be: $20 per pair direct materials; $25 per
pair direct labor; $5 per pair shipping costs and $5 per pair miscellaneous overhead.
The fixed costs for this line of shoes are: $50,000 advertising/promotion; $125,000
manufacturing plant manager salary; $350,000 depreciation expense on
manufacturing equipment; and $50,000 other miscellaneous fixed costs.
• Birkenstock's best guess is that they will sell 12,000 pairs of Big Buckle
sandals in 2021. What is Birkenstock's expected 2021 profit on this
product? Type your answer in the first blank below.
Birkenstock's marketing team is considering two possibilities to increase profits on
the Big Buckle sandals. Treat each alternative as an independent option (i.e.,
evaluate each option relative to selling 12,000 pairs of shoes at $125 per pair).
Calculate the expected profit for each option and indicate whether Birkenstock
should make the change.
OPTION 1: Birkenstock's marketing team estimates that if they increase the
product's price to $150 per pair, they will sell 30% fewer pairs of Big Buckle sandals.
Use this information to answer the following questions (type your answers in blanks
2 and 3 below).
• What is Birkenstock's expected profit if they increase the selling price to
$150 per pair?
• Does this analysis suggest that Birkenstock should increase the selling price
from $125 to $150? Indicate YES or NO.
Transcribed Image Text:OPTION 2: The marketing team estimates that if Birkenstock spends an additional
$25,000 on promotion (via fees to Instagram influencers) per year, they will sell 25%
more sandals. To meet this extra demand, Birkenstock would need to purchase
additional manufacturing equipment that would lead to $50,000 extra depreciation
cost per year. Assume that Birkenstock prices the sandals at $125 per pair. Use this
information to answer the following two questions (type your answers in blanks 4
and 5 below).
• What is Birkenstock's expected profit if they market through Instagram
influencers?
• Does this analysis suggest that Birkenstock should market through Instagram
influencers? Indicate YES or NO.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 6 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning