TopHats operates a kiosk at a local mall, selling hats for $30 each. TopHats currently pays $900 a month to rent the space and pays three full-time employees to each work 160 hours a month at $12 per hour. The store shares a manager with a neighboring mall and pays 40% of the manager’s annual salary of $60,000 and benefits equal to 18% of salary. The wholesale cost of the hats to the company is $10 a hat.

Required

1. How many hats does TopHats need to sell each month to break even?
2. If TopHats wants to earn an operating income of $5,000 per month, how many hats does the store need to sell?
3. If the store’s hourly employees agreed to a 20% sales-commission-only pay structure, instead of their hourly pay, how many hats would TopHats need to sell to earn an operating income of $5,000?
4. Assume TopHats pays its employees hourly under the original pay structure but can pay the mall 5% of its monthly revenue instead of monthly rent. At what sales levels would TopHats prefer to pay a fixed amount of monthly rent, and at what sales levels would it prefer to pay 5% of its monthly revenue as rent?