(Retail merchant CVP) Franklin Optical Shop has been in operation for several years. Analysis of the firm’s recent financial statements and records reveals the following:

Average selling price per pair of glasses $70 Variable expenses per pair:

Lenses and frames $28 Sales commission 12 Variable overhead 8 Annual fixed costs:

Selling expenses $18,000 Administrative expenses 48,000 The company’s effective tax rate is 40 percent. Samantha Franklin, company president, has asked you to help her answer the following questions about the business.

a. What is the break-even point in pairs of glasses? In dollars?

b. How much revenue must be generated to produce $80,000 of pretax earnings?

How many pairs of glasses would this level of revenue represent?

c. How much revenue must be generated to produce $80,000 of after-tax earnings? How many pairs of glasses would this represent?

d. What amount of revenue would be necessary to yield an after-tax profit equal to 20 percent of revenue?

e. Franklin is considering adding a lens-grinding lab, which will save $6 per pair of glasses in lens cost, but will raise annual fixed costs by $8,000. She expects to sell 5,000 pairs of glasses. Should she make this investment?

f. A marketing consultant told Franklin that she could increase the number of glasses sold by 30 percent if she would lower the selling price by 10 percent and spend $20,000 on advertising. She has been selling 3,000 pairs of glasses. Should she make these two related changes?