Angle Silva has recently opened The Sandal Shop in Brisbane, Australia. The store specializes in fashionable sandals. Angie has just earned a business degree and is anxious to apply business principles to her company. In time, she hopes to expand into 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 $ 50 Variable expenses per pair of sandals 20 Contribution margin per pair of $ 30 sandals Fixed expenses per month: Building rental $ 22,000 Equipment depreciation 22,000 Selling 44,000 Administrative 32,000 Total fixed expenses $120,000 Required: 1. How many pairs of sandals must be sold each month to break even? What does this represent in total dollar sales? pairs Break-even point in unit sales Break-even point in dollar sales 2. Prepare a CVP graph for the store from a zero level of activity up to 5,000 pairs of sandals sold each month. Indicate the break-even point on your graph Instructions: 1. Use the line tool (Total Sales line, plot 2 points) to draw the total sales line extend the line to maximum in the graph. 2. Use the line tool (Total Expenses line, plot 2 points) to draw the total expenses line extend the line to maximum in the graph. 3. Use the line tool (Total Fixed Expenses, plot 2 point) to draw the total fixed expenses line extend the line to maximum in the graph. 4. Use the point tool (Break-even point, plot 1 point) to show the break-even point. 5. Once all points have been plotted, click on the line (not individual points) and a tool icon will pop up. You can use this to enter exact co-ordinates for your points as needed 6. Plot the graph exactly using the tool to get full marks, tirak even 400 360- Total Fixed Express 300- 200 To Ees 200 Tow Sales Total Dollars (0005) 200- 120- NO- D 36000 3100 3200 4100 4100 do 1oo hooo Numharf Painen Sandale Said 3. Angle has decided that she must earn at least $108,000 the first year to justify her time and effort. How many pairs of sandals must be sold on average per month to reach this target profit? Unit sales to attain target profit pairs 4. Angie now has two salespeople working in the store-one full-time and one part-time. It will cost her an additional $35,280 per year to convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $58,800 in sales each year. Should she convert the position? Use the incremental approach. Yes O No 5. Refer to the original data. During the first year, the store sold 66,000 pairs of sandals and reported the following operating results: Sales (66,000 pairs) $ 3,300,000 Less: Variable expenses 1,320,000 Contribution margin 1,988,888 Less: Fixed expenses 1,440,000 Net income $ 540,000 a. What is the store's degree of operating leverage? (Round your answer to 2 decimal places.) Degree of operating leverage b. Angie is confident that with a more intense sales effort and a more creative advertising program, she can increase sales by 20% next year. What would be the expected percentage increase in net income? Use the degree of operating leverage to compute your answer. Percentage increase in net income
