Cost Accounting

Chapter - CVP

Comprehensive Problem

Dennys, a retail stores, operates a chain of stores that sells different handbags. The store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Dennys is considering opening another store that is expected to have revenue and cost as follow:

Fixed Costs	Amount
Advertising Expense	$40,000
Other Fixed Expenses	10,000
Rent Expense	30,000
Salaries Expenses	100,000

Per unit Variable Costs	Amount
Selling Price	$ 60
Sales Commission	3
Cost of handbag	37

The following questions are based on the above cost data:

(1) What is the yearly breakeven in

a) Units sold

b) Revenue

2) What will Dennys operating income be if the store sold 8, 000 units?

3) Dennys is considering paying all the salesperson a fixed salary instead of allowing the sales person to work on commission. If Dennys take away the commission, he would have to increase fixed salary by $15, 500. What would be impact on yearly breakeven point in

a) Units Sold

b) Revenue

4) Scenario # 1: What if in addition to the fixed salary, the store manager is paid a commission of $2 per unit of each item sold. What would be the yearly breakeven

a) Units sold

b) Revenue

5) Scenario # 2: What if in addition to his fixed salary, the store manager is paid a commission of $2 per unit above the breakeven point, what would be the stores operating income if the store sold 12, 000 units.

6) Suppose Dennys projected a target profit of $69,000, How many units should the store sold in order to reach the target profit based on original plan. (that is: not including the changes made in questions 3, 4 and 5