Question
Nielsen's Fine Clothing Store You are the owner of a general retail clothing store.Below is the income statement for last year which is not expected
Nielsen's Fine Clothing Store
You are the owner of a general retail clothing store.Below is the income statement for last year which is not expected to change at all during the upcoming fiscal year.You have one full time manager, two three quarter time assistant managers and 3 part time clerks.You have had the manager and assistant managers for the past five years.Five years ago sales were only 350,000 dollars.As sales have increased you have added the part time clerks.You anticipate adding more clerks as sales increase in the future.You pay you credit card vendor 1 percent of sales.Bad debt expense and shrinkage are also estimated as a percentage of sales.The Mall common area payment must be paid regardless of how many sales you make.In addition, your ex-husband must get paid alimony and child support each month (which you pay from the owner's salary).
1.Please calculate the pretax breakeven pointfrom the formula in the online lecture on breakeven analysis. (20 points)
2.What happens to your breakeven point if your primary supplier of clothing raises prices 5%? You buy 45% of your clothing from this company. (10 points)
3.Your manager has received an offer of employment from a competitor.She would make 25% more than you are paying her now.If you match this offer, what is the impact upon your breakeven point (what will the new breakeven point be) ? (10 points)
Please show the calculations with your answers.
Data for analysis.
First step:Determine which expense items are fixed and which are variable.Please identify which are fixed and which are variable.I do not expect you to make the same assumptions I would make.You are graded on the application of the breakeven formula to the data as you have analyzed it.
Second Step:Calculate the breakeven sales using the formula in the online lecture.
Third Step:what if" analysis by changing the inputs (in problem 2 and 3) and recalculating the breakeven sales.
Revenues$650,000
Expenses:
Managers's Salaries & Benefits25,000
Asst. Managers' Wages35,000
Clerical Wages29,000
Owner's Salary55,000
Rent (4% of gross revenue)13,000
Mall CommonArea Payment25,000
Phone Bill5,000
Property Insurance7,000
Property Taxes5,000
Office Supplies2,000
Postage500
Equipment Expenses5,000
Shrinkage4,000
Bad Debt Expense15,000
Credit Card Expense6.500
Wholesale Clothing Purchases380,000
---------------
Total Expenses612,000
Net Operating Income38,000
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