Problem 5-19A Basic CVP Analysis; Graphing [LO1, LO2, LO4, LO6]

Shirts Unlimited 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 worksheet contains cost and revenue data for Store 36. These data are typical of the company's many outlets:

	Per Shirt
Selling price	$	28
Variable expenses:
Invoice cost	$	13
Sales commission		5
Total variable expenses	$	18
		Annual
Fixed expenses:
Rent	$	65,000
Advertising		150,000
Salaries		55,000
Total fixed expenses	$	270,000

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:
1.	Calculate the annual break-even point in dollar sales and in unit sales for Store 36.

Break-even point in unit sales		shirts
Break-even point in dollar sales	$

2.

Prepare a CVP graph showing cost and revenue data for Store 36 from zero shirts up to 30,000 shirts sold each year. Clearly indicate the break-even point on the graph. (Use the line tool to draw 3 lines (Total Sales, Fixed Expenses, Total Expenses). Each line should only contain the two endpoints. Use the point tool (Break Even Point) to plot the Break Even Point. For your graph to grade correctly, you must enter the exact coordinates for each endpoint and the Break Even Point. To enter the exact coordinates for each point, double click on the point and enter the exact values for x and y.)

3.	If 26,000 shirts are sold in a year, what would be Store 36's net operating income or loss? (Input the amount as a positive value.)

(Click to select)Net operating lossNet operating income

$

4.	The company is considering paying the store manager of Store 36 an incentive commission of $1 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales?

New break-even point in unit sales		shirts
New break-even point in dollar sales	$

5.

Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager a $1 commission on each shirt sold in excess of the break-even point. If this change is made, what will be the stores net operating income or loss if 32,000 shirts are sold in a year? (Input the amount as a positive value.)

(Click to select)Net operating incomeNet operating loss

$

6.	Refer to the original data. The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $96,000 annually. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 36?