PROBLEM 6-30 Graphing; Incremental Analysis; Operating Leverage LO6-2, LO6-4, LO6-5, LO6-6 , LO6-8 Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store $40 Sales price per pair of sandals Variable expenses per pair of sandals 16 Contribution margin per pair of sandals $24 Fixed expenses per year $15,000 Building rental Equipment depreciation 7,000 20,000 Selling 18,000 Administrative Total fixed expenses $60,000 Required: 1. What is the break-even point in unit sales and dollar sales? 2. Prepare a CVP graph or a profit graph for the store from zero pairs up to 4,000 pairs of sandals sold each year. Indicate the break-even point on your graph 3. Angie has decided that she must earn a profit of $18,000 the first year to justify her time and effort. How many pairs of sandals must be sold to attain this target profit? 4. Angie now has two salespersons working in the store-one full time and one part time. It will cost her an additional $8,000 per year to convert the part-time position to a full-time position. Angie believes that the change would increase annual sales by $25,000. Should she convert the position? Use the incremental approach. (Do not prepare an income statement.) 5. Refer to the original data. During the first year, the store sold only 3,000 pairs of sandals and reported the following operating results: $120,000 Sales (3,000 pairs) Variable expenses 48,000 Contribution margin 72,000 Fixed expenses 60,000 12,000 Net operating income a. What is the store's degree of operating leverage? Page 262 b. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 50% next year. Using the degree of operating leverage, what would be the expected percentage increase in net operating income if Angie is able to increase sales by 50 %