29 Jun Prime Shoes & Accessories [PSA] manufacture
Question
Prime Shoes & Accessories [PSA] manufacture dress shoes, running shoes and heel replacement kits for both men’s and women’s shoes. For its heel replacement kits Unit, PSA has fixed costs of $6 million and unit variable costs of $5.00 per pair. PSA’s desired mark-up on sales for each set of kit is 25%. A consultant to the company suggested that if PSA invests a sum of $3, 9 million and switch from manual labour to an automated process to upgrade its heel replacement facilities, variable costs for heel replacement kits would be reduced to $3.00 per unit. The upgrading, which will take a year to be operational, would definitely be better for PSA.
1. If PSA expects to sell 600,000 heel replacement kits this year calculate the unit cost of each kit. If the kit’s mark-up on sales is 25%, what would be the mark-up price? (please give me clear explanation about the computation-> how to calculate this)
A. $ 5.00; $ 20.00
B. $ 5.00; $ 18.75
C. $ 15,00; $ 20.00
D. $ 15.00; $ 18.75
E. $ 11.25; $ 15.00
2) How many kits would PSA have to sell at its marked-up price (calculated in question 1) to make $2 million in profits in the next year when the upgraded facilities become operational?(please give clear explanation about the computation)
A. 169,231 kits
B. 600,667 kits
C. 700,000 kits
D. 800,000 kits
E. 1,000,000 kits
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