eri Hall recently opened Sheer Elegance Inc., a store specializing in fashionable stockings. Hall has just completed a course in managerial accounting, and she believes that she can apply certain aspects of the course to her business. She is particularly interested in adopting the CVP approach to decision making. Thus, she has prepared the following analysis:

Sales price per pair of stockings$10.00Variable expense per pair of stockings4.00Contribution margin per pair of stockings$6.00Fixed expense per year:Building rental$48,000Equipment depreciation12,000Selling120,000Administrative60,000Total fixed expense$240,000

Required:

1.How many pairs of stockings must the store sell to break even? What does this represent in total dollar sales?

2.Not available in Connect.

3.How many pairs of stockings must the store sell to earn a $15,000 target profit for the first year?

4.Hall now has one full-time and one part-time salesperson working in the store. It will cost her an additional $20,000 per year to convert the part-time position to a full-time position. Hall believes that the change would bring in an additional $40,000 in sales each year. Should she convert the position? Use the incremental approach.

• Yes
• No

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

Sales$600,000Variable expenses240,000Contribution margin360,000Fixed expenses240,000Operating income$120,000

a.What is the store's degree of operating leverage?

b.Hall is confident that with some effort she can increase sales by 20% next year. What would be the expected percentage increase in operating income? Use the degree of operating leverage concept to compute your answer.