CVP, shoe stores. The Walk Rite $hoe Company operates a chain of shoe stores. The stores sell ten different styles of inexpensive men’s shoes with identical unit costs and sell¬

ing prices. A unit is defined as a pair ofshoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Walk Rite is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:

Selling price $36.00 Unit variable cost per pair:
Cost ofshoes $23.40 Sales commissions 1.80 Total variable costs $25.20 Annual fixed costs:
Rent $ 72,000 Salaries 240,000 Advertising 96,000 Other fixed costs 24,000 Total fixed costs $432,000 Required (Consider each question independently.)
1. What is the annual breakeven point in

(a) units sold and

(b) revenues?
2. If 35,000 units are sold, what will be the store’s operating income (loss)?
3. If sales commissions were discontinued for individual salespeople in favour of a $97,200 increase in fixed salaries, what would be the annual breakeven point in

(a) units sold and

(b) revenues?
4. Refer to the original data. If the store manager were paid $0.36 per unit sold in addition to his current fixed salary, what would be the annual breakeven point in

(a) units sold and

(b) revenues?
5. Refer to the original data. If the store manager were paid $0.36 per unit commission on each unit sold in excess of the breakeven point, what would be the store’s operating income if 50,000 units were sold? (This $0.36 is in addition to both the commission paid to the sales staff and the store manager’s fixed salary.)
Excel Application For students who wish to practise their spreadsheet skills, the following is a step-by-step approach to creating an Excel spreadsheet to work this problem.
Step-by-Step 1.At the top of a new spreadsheet, create an “Original Data” section for the data provided by Walk Rite. Create rows for the unit variable data and annual fixed cost data in the same format as shown for Walk Rite above.
(Program your spreadsheet to perform all necessary calculations. Do not “hard-code” any amounts, such as breakeven quantities or revenues, requiring addition, subtraction, multiplica¬
tion, or division operations.)
2. Skip down rows. Create a new section labelled “Problem 1.” Create rows for “Contribution margin per unit,” “a. Breakeven units,” and “b. Breakeven revenues.” Use the data in the “Original Data” section and enter calculations for contribution margin, breakeven units, and breakeven revenues in rows

(a) and (b).
3. $kip two rows and create a new section labelled “Problem 2.” Create rows for revenues, cost of shoes, sales commissions, total variable costs, contribution margin, total fixed costs, and operating income. The format should be similar to the contribution income statement in the “Merchandising $ector” section on page 86. Enter calculations for cost of shoes and sales commissions, total revenues, total variable costs, contribution margin, total fixed costs, and operating income.
4. $kip two rows. Create a new section labelled “Problem 3” using the same format created for “Problem 1.” Enter calculations for contribution margin, breakeven units, and breakeven revenues that reflect the discontinuance of sales commissions and increase in fixed salaries.
5. $kip two rows. Create a new section labelled “Problem 4” using the same format as steps 2 and 4. Enter calculations for contribution margin, breakeven units, and breakeven rev¬
enues that reflect the new fixed-salary plus commission structure.
6. $kip two rows. Create a new section labelled “Problem 5.” Create a contribution income statement using the same format as created for “Problem 2.” Enter the same cal¬
culations as in step 3, reflecting the new salary plus commission structure and the 50,000 units sold.
7. Verify the accuracy ofyourspreadsheet. Go to your “Original Data” section and change the cost of shoes front $23.40 to $24.00. If your spreadsheet is programmed correctly, breakeven revenues in Problem 1 should change to $1,524,708 and operating income in Problem 5 should change to $74,400.