Chapter 5 In-Class Case The Fashion Shoe Company operates a women's shoe shop that carries many styles of shoes that are sold at the same price. Sales personnel in the shop are paid a substantial commission on each pair of shoes sold in addition to a small base salary) in order to encourage them to be aggressive in their sales efforts. Revenue and cost data for the shop are as follows: Per Pair of Shoes Selling price $30.00 Variable costs: Invoice cost 13.50 Sales commission 4.50 Total variable costs S18.00 Annual Fixed costs: Advertising Rent Salaries Total Fixed Costs $30,000 20,000 100.000 $150,000 1. Calculate the break-even point in units (one unit is a pair of shoes). Rent Salaries Total Fixed Costs 20,000 100.000 $150,000 1. Calculate the break-even point in units (one unit is a pair of shoes). 2 . Using contribution margin ratio, calculate the break-even point in sales dollars. 3. Using the Contribution Income Statement format, determine the net operating income or loss if 12,000 pairs of shoes were sold. 37 4. The shop's owner desires a profit (operating income) of $75,000. How many pairs of shoes must be sold to achieve the desired profit? 5. Calculate the dollar sales required to generate a profit of $75,000. 6. The owner is considering hiring two additional employees and extending hours of operation. The new employees would be paid a salary of $15,000 each plus the commission given to other employees. By doing so, the owner hopes to double sales volume. If the owner hires the additional employees, how many pairs of shoes must be sold to achieve the desired profit of $75,000? 7. Assume the owner hires the additional employees and estimates sales based on your calculation in Item 6. Determine the margin of safety in dollars and the margin of safety percentage. 38