Basic Cost-Volume-Profit Analysis The Look Rite Company operates a chain of rented stores and departments within larger stores. The chain features a variety of “packs” of men’s shirts, ties, and accessories that are sold at a price of $5 per pack. Therefore, all sales are at $5 per unit, where the pack is defined as one unit. Depending on quality, a “pack” might contain a single tie or several ties. Another pack might contain a single shirt or a matching tie and shirt. The chain operates on a relatively low margin and uses a sales commission to encourage its sales personnel to be more than mere order takers.

Look Rite is trying to determine the desirability of opening another store that would possess the following expense and revenue relationships:

PER PACK Selling price $5.00 Invoice cost of a pack $4.00 Sales commissions .25 $4.25 Annual fixed expenses:
Rent $ 5,500 Wages 17,600 Utilities 2,100 Other fixed expenses 4,800 $30,000 Consider each question independently:
. What is the annual breakeven point in dollar sales and in unit sales? - If 35,000 packs were sold, what would be the store’s net income (loss)? . If the store manager were paid 5¢ per pack as additional commission, what would be the annual breakeven point in dollar sales and in unit sales? . Refer to the original data. If sales commissions were discontinued in favor of an $8,000 increase in fixed salaries, what would be the annual breakeven point in dollars and in unit sales? Is this a desirable change? Why? . Refer to the original data. The regular $.25 commission is still in force. If the store manager were paid 10¢ per pack as commission on each pack sold in excess of the breakeven point, what would be the store’s net income if 50,000 packs were sold? lop1