Manchester Clothing operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold. Sales personnel also receive a small basic salary.

The following table contains cost and revenue data for Store 52. These data are typical of the company's many outlets:

The company has asked you, as a member of its planning group, to assist in some basic analysis of its stores and company policies.

Required:

The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $107,000 annually.

a. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 52? (4 marks)

b. Would you recommend that the change be made? Explain. (5 marks)

$ 40.00 $ 18.00 7.00 $ 25.00 Selling price per shirt ... Variable expenses per shirt: Invoice cost.... Sales commission.. Total variable expenses per shirt Fixed expenses per year: Rent ... Advertising Salaries. Total fixed expenses per year. ... $ 80,000 150,000 70,000 $300,000