*I NEED QUESTION #11 ANSWERED ONLY.* Thank you very much for your help.

Budget Balancers:

You are a team of consultants who assist organizations with budgeting, and you provide data analysis to assist with decision making. You have just been hired as a consultant by Earrings Unlimited, a distributor of earrings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare a master budget for the upcoming second quarter. The organization is also interested in changing the commission structure to see if they can boost profits. To this end, you have worked with accounting and other areas to gather the information assembled below.

The company sells many styles of earrings, but all are sold for the same price$14 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings):

January (actual)	20,800	June (budget)	50,800
February (actual)	26,800	July (budget)	30,800
March (actual)	40,800	August (budget)	28,800
April (budget)	65,800	September (budget)	25,800
May (budget)	100,800

The concentration of sales before and during May is due to Mothers Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month.

Suppliers are paid $4.40 for a pair of earrings. One-half of a months purchases is paid for in the month of purchase; the other half is paid for in the following month. All sales are on credit. Only 20% of a months sales are collected in the month of sale. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sale. Bad debts have been negligible.

Monthly operating expenses for the company are given below:

Variable:
Sales commissions		4	% of sales
Fixed:
Advertising	$	240,000
Rent	$	22,000
Salaries	$	114,000
Utilities	$	9,000
Insurance	$	3,400
Depreciation	$	18,000

Insurance is paid on an annual basis, in November of each year.

The company plans to purchase $18,000 in new equipment during May and $44,000 in new equipment during June; both purchases will be for cash. The company declares dividends of $18,000 each quarter, payable in the first month of the following quarter.

The companys balance sheet as of March 31 is given below:

Assets
Cash	$	78,000
Accounts receivable ($37,520 February sales; $456,960 March sales)		494,480
Inventory		115,808
Prepaid insurance		23,000
Property and equipment (net)		990,000
Total assets	$	1,701,288
Liabilities and Stockholders Equity
Accounts payable	$	104,000
Dividends payable		18,000
Common stock		880,000
Retained earnings		699,288
Total liabilities and stockholders equity	$	1,701,288

The company maintains a minimum cash balance of $54,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month.

The company has an agreement with a bank that allows the company to borrow in increments of $1,000 at the beginning of each month. The interest rate on these loans is 1% per month and for simplicity we will assume that interest is not compounded. At the end of the quarter, the company would pay the bank all of the accumulated interest on the loan and as much of the loan as possible (in increments of $1,000), while still retaining at least $54,000 in cash.

Prepare a report that will allow management to decide among several alternatives related to commission and salary structure. Report out the following information:

5. What is Earrings Unlimiteds annual break even point in unit sales and dollar sales?

6. Prepare a CVP graph showing cost and revenue data from zero to 750,000 earrings. Clearly indicate the break even point on the graph.

7. If 600,000 earrings are sold in a year, what would be Earrings Unlimiteds net operating income (loss)?

8. The company is considering paying the retail coordinator an incentive commission of $0.10 per pair of earrings. This will be on top of the salespeoples commission and there will be no change in fixed salaries. If this change is made, what will be the new break even point in unit sales and dollar sales?

9. As an alternative to #8 above. The company is considering paying the store managers $0.20 commission on each pair of shoes sold. If this change is made, what will be the net operating income (loss) if 650,000 are sold?

10. Another idea to be tested is that the company will eliminate the 4% sales commission and increase fixed salaries by $250,000. What will be the new break even point in unit sales and dollar sales.

11. Make a recommendation based on the 3 alternatives discussed in items 8-10 above. Describe why you think one is better than the others or why the current structure should remain in place.

*I NEED QUESTION #11 ANSWERED ONLY.* Thank you very much for your help.