QUESTION 1 (16 MARKS) Earthstep Company specialises in selling sandals made of recycled materials. All the sandals are sold at the same price. Sales personnel are paid a commission on each pair of sandals sold (in addition to a basic salary) to encourage them to sell more. The following is the cost and revenue data for the company: Per Pair of Sandals $30 Selling price Variable expenses: Cost of sandal Sales commission Fixed expenses: Advertising Rent Salaries Required: $13.50 4.50 Per Year $30,000 20,000 100,000 (a) Calculate the break-even point in units and sales dollar. (b) If 17,000 pairs of sandals are sold in a year, what would be the company's income? What would be the margin of safety in units and sales dollar? (4 marks) net operating (3 marks) (c) Refer to the original data. The company is considering paying the store manager $0.50 commission on each pair of sandals sold in excess of the break-even point. If this change is made, what will be the net operating income if 19,000 pairs are sold? (3 marks) 1 (d) Refer to the original data. The company is considering eliminating sales commissions entirely and increasing fixed salaries by $32,500 annually. If this change is made, what will be the new break-even point in units and sales dollar? Would you recommend that the change be made? Explain. (6 marks)

QUESTION 1 (16 MARKS) Earthstep Company specialises in selling sandals made of recyeled materials. All the sandals are sold at the same price. Sales personnel are paid a commission on each pair of sandals sold (in addition to a basic salary) to encourage them to sell more. The following is the cost and revenue data for the company: Required: (a) Calculate the break-even point in units and sales dollar. (4 marks) (b) If 17,000 pairs of sandals are sold in a year, what would be the company's net operating income? What would be the margin of safety in units and sales dollar? (3 marks) (c) Refer to the original data. The company is considering paying the store manager $0.50 commission on each pair of sandals sold in excess of the break-even point. If this change is made, what will be the net operating income if 19,000 pairs are sold? (3 marks) 1 (d) Refer to the original data. The company is considering eliminating sales commissions entirely and increasing fixed salaries by $32,500 annually. If this change is made, what will be the new break-even point in units and sales dollar? Would you recommend that the change be made? Explain. ( 6 marks)