The next two questions refer to the following fictional financial statement from Katie's Kicks: Revenue: $500,000 Shoes: $250,000 Shoe boxes: $1,000 Advertising: $500 Rent: $1,000 Depreciation: $25 How many additional shoes would Katie's Kicks have to sell to cover a $25,000 investment in advertising and maintain their current contribution to the company, assuming they are currently selling 5,000 pairs of shoes

How many additional shoes would Katie's Kicks have to sell to cover a $25,000 investment in advertising and maintain their current contribution to the company, assuming they are currently selling 5,000 pairs of shoes will  be: 502

First step is to calculate the contribution margin

Revenue $500,000

Less Variable expenses

Shoes $250000

Packaging $1000

Total Variable expenses $251,000

Contribution margin $249,000

($500,000-$251,000)

Second step is to calculate the contribution margin per shoe

Contribution margin per shoes=$249,000/5,000

Contribution margin per shoes=49.8

Now let determine how many additional shoes would Katie's Kicks have to sell

Additional shoes=$25,000/49.8

Additional shoes=502

Inconclusion how many additional shoes would Katie's Kicks have to sell to cover a $25,000 investment in advertising and maintain their current contribution to the company, assuming they are currently selling 5,000 pairs of shoes will be: 502

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502

Explanation:

In this question, we are asked to calculate the number of additional shoes to be sold to cover a $25,000 investment in advertising whilst also maintaining current contribution to the company.

Firstly, we calculate the sum of variable expenses;

This is the sum of shoe boxes and shoes = 1,000 + 250,000 = 251,000

Now, we proceed to get the contribution margin.

Mathematically, contribution margin = Revenue - Total variable expenses = 500,000 - 249,000 = 251,000

The contribution margin per part can be calculated as ;

Contribution Margin/currently selling pairs of shoes= 249,000/5000 = 49.8

The additional parts to be sold = Investment in advertising/contribution margin per shoes

= 25,000/49.8

= 502

answer the amount a seller is paid minus the cost of production;