http://www.chegg.com/homework-help/questions-and-answers/walkrite-shoe-company-operates-chain-shoe-stores-sell-10-different-styles-inexpensive-men--q8210449

UNIT VARIABLE DATA (per pair of shoes)

Selling price $30

Cost of shoes $19.50

Sales commission $1.50

Variable cost per unit $21.00

ANNUAL FIXED COSTS

Rent $60,000

Salaries $200,000

Advertising $80,000

Other fixed costs $20,000

TOTAL FIXED COSTS $360,000

Contribution per unit = selling price -variable cost per unit

= 30 -21

= $ 9 per unit

CM ratio = 9/30 = .30 or30%

Fixed cost =60,000 +200,000 + 80,000 +20,000

= $ 360,000

1)BEP (units) =Fixed cost / Contribution per unit

= 360,000 /9 = 40,000 units

BEP (dollars) = Fixed cost/cm ratio

= 360,000 / .30 = $ 1,200,000

2)Operating income = [contribution per unit *unit sold] -fixed cost

= [9 *35,000 ] - 360,000

= 315,000 -360,000

= $ -45,000

3)New contribution per unit = 30- 19.50 = $ 10.50 per unit

CM ratio = 10.50 /30 = 35%

Fixed cost = 60,000 + 281,000 +80,000 +20,000 = 441,0000

BEP(units) =441,000 / 10.50 = 42000 units

BEP(dollars) =441,000 /.35 = $ 1,260,000

4) new conribution per unit = 30 -(21+ .30 )

= 8.70 per unit

CM ratio =8.7 /30 = 29%

Fixed cost= 360,000

BEP(units) = 360,000 / 8.7

= 41,379 units(approx)

BEP(dollars ) =360,000 / .29

= $ 1,241,379.31

5)Operating income - [(Contribution per unit *units sold) -fixed cost -( sales commission *unit in excess of break even)]

[(9 *50,000 ) -360,000 - (.30{50,000-40,000} ]

[ 450,000 -360,000 - 3,000]

= $ 87,000

Refer to the previous information to answer the following questions.

1. Calculate the number of units sold at which the owner of WalkRite would be indifferent between the original salary-plus-commissions plan for salespeople and the higher fixed-salaries-only plan.

2. As owner, which sales compensation plan would you choose if forecasted annual sales of the new store were at least 55,000 units? What do you think of the motivational aspect of your chosen compensation plan?

3. Suppose the target operating income is $168,000. How many units must be sold to reach the target operat- ing income under (a) the original salary-plus-commissions plan and (b) the higher-fixed-salaries-only plan?

4. You open the new store on January 1, 2011, with the original salary-plus-commission compensation plan in place. Because you expect the cost of the shoes to rise due to inflation, you place a firm bulk order for 50,000 shoes and lock in the $19.50 price per unit. But, toward the end of the year, only 48,000 shoes are sold, and you authorize a markdown of the remaining inventory to $18 per unit. Finally, all units are sold. Salespeople, as usual, get paid a commission of 5% of revenues. What is the annual operating income for the store?