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?

Break-even point in unit sales		pairs
Break-even point in dollar sales

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

Unit sales to attain target profit

pairs

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).