Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a first step, she has prepared the following analysis for her new store:

Sales price per pair of sandals	$	1.80
Variable expense per pair of sandals		0.72
Contribution margin per pair of sandals	$	1.08
Fixed expense per year:
Building rental	$	14,000
Equipment depreciation		1,000
Selling		39,800
Administrative		10,000
Total fixed expense	$	64,800

Required:

1.	How many pairs of sandals must be sold each year to break even? What does this represent in total dollar sales?

2.	How many pairs of sandals must be sold to earn a $2,160 target profit for the first year?

3.	Refer to the original data. Actual operating results for the first year are as follows:

Sales (67,500 pairs)	$	121,500
Variable expenses		48,600
Contribution margin		72,900
Fixed expenses		64,800
Net operating income	$	8,100

a.	What is the stores degree of operating leverage? (Round your answer to 2 decimal places.)

b.	Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 10% next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept to compute your answer. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34).