Sand in Your Shoes, Inc., makes and sells sandals. Last month they sold 4700 units, for $ 275 each. The cost of leather to make a pair of sandals is $ 37, but the artisans who produce them take three hours of labor to make each pair and are paid $ 28 an hour. The electricity cost per finished pair is $ 4 each, and the company pays a $ 15 sales commission per pair sold. Totals of factory costs per month are rent of $ 170,000, insurance of $ 46,000 and the production supervisor makes $ 55,000 each month. The sales staff receives salaries of $ 51,000 each month and the salesroom rent is $ 29,000 monthly.
Compute the company’s breakeven in units and in sales dollars, and the company’s margin of safety. Write up a contribution margin income statement for the company for last month.
The production manager, Stephanie, feels she can increase sales by 15% by increasing product quality. She feels that this could be accomplished in one of three ways, either by 1, hiring a second production manager for quality control at $ 52,000 salary a month, or 2, by adding a monthly worker training program at $ 25,000 each month, which would be required to be completed successfully monthly by all assemblers but would be rewarded with a raise of $ 12 per hour from now on for the artisans, or finally 3, by using a higher quality materials costing $ 65 per pair, along with an advertising campaign cost of $ 15,000 monthly.
Are any of these options a good idea? If two are, which is best? Show with appropriate computations.
