Per pair of shoes

Selling price

$$40\mathrm{.}00$

Variable expenses:

Cost for invoice

$$13\mathrm{.}50$

Sales staff Commission

$4\mathrm{.}50$

Total variable expenses

$$18\mathrm{.}00$

Fixed Costs:

Media$/$advertising $($print and electronic$)$

$$30,000$

Showroom rental expenses

$20,000$

All staff salaries

$170,000$

$$220,000$

Mr$.$ Fahim Shafiul Alam, Managing Director of La Mode BD$,$ is planning to open another showroom in Dhaka city by next year. To do so he is interested to know required business preparation, possible investment, risk factors, logistic supports, and other necessary stuffs. As you are doing Management Accounting $($ACT$202)$ as part of BBA program at Brac University he believes you can work as his business analyst, and you can advise him for the upcoming project. Mr$.$ Alam believes that the Banani branch can be a great example and its data are sufficiently enough to forecast for the next project. Later he sent me an email and requested you to answer his following questions using the concept of Cost$-$Volume$-$Profit $($CVP$)$ analysis.

Calculate the annual break$-$even point in unit sales and in dollar sales for Banani Showroom. $(1$ mark$)$

If $15,000$ pairs of shoes are sold in a year, what would be net operating income or loss for La Mode? $(1$ mark$)$

Mr$.$ Alam is considering paying the branch manager of Banani Showroom an incentive commission of $75$ cents per pair of shoes $($in addition to the salesperson$$s commission$).$ If this change is made, what will be the new break$-$even point in unit sales and in dollar sales?

$(1$ mark$)$

If you use original data. As an alternative to $($III$)$ above, the La Mode BD is considering paying the store manager $50$ cents commission on each pair of shoes sold in excess of the break$-$even point. If this change is made, what will be the Banani Showroom$$s net operating income or loss if $18,000$ pairs of shoes are sold? $(1$ mark$)$

Refer to the original data. La Mode is considering eliminating sales commissions entirely for Banani Showroom and increasing fixed staff salaries by $$40,000$ annually. If this change is made, what will be the new break$-$even point in unit sales and in dollar sales for Banani Showroom? Mr$.$ Alam is seeking your advice. Do you recommend Mr$.$ Alam to make the change or not? Advice based on your understanding with supporting calculations.

$(2$ marks$)$

Mr$.$ Alam is interested to know how many pairs of shoes need to be sold to achieve a target profit of $ $180,000.(2$ marks$)$

Mr$.$ got to know some tools of management accounting when he was searching for an appropriate analyst, and he is excited to know these tools from you. For instance, Mr$.$ Alam wants to know his margin of safety in his business $($Banani Showroom$)$ with the original data. Later, he shows his desire to know the uses of operating leverage which has been widely used in management accounting research. Could you please calculate degree of operating leverage for his Banani Showroom and explain its uses? $(2$ marks$)$