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Yogatta get Yoga, Inc. operates a chain of high-end athletic apparel stores. The stores sell ten different styles of yoga pants with identical unit costs and selling prices. A unit is defined as one pair of yoga pants. Each store has a manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Yogatta is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships: Per Pair Unit variable data: Selling price $50 Cost of pants $29.50 Sales commissions $4.50 Total variable costs $34 Annual fixed costs: Rent $160,000 Salaries $200,000 Advertising $80,000 Other fixed costs $80,000 Total fixed costs $520,000 Consider each question independently. 1 Assume the cost of pants ($29.50) listed above includes both variable and fixed, direct and indirect costs. a. Explain what costs would be included in each of these categories (variable, fixed, direct, and indirect). Explain which terms describe the cost behavior and which terms describe the cost classification. Why is it important to consider cost behavior and cost classification when assigning costs? b. If direct materials included in this cost ($29.50) are $3 and direct labor is $14, what is the manufacturing overhead assigned to one pair of pants? . Calculate the plantwide predetermined overhead rate (POHR). Assume that manufacturing overhead is assigned based on direct labor hours (DLH). The actual direct labor hours to make one pair of pants is 1 hour. The information below relates to the companies estimated manufacturing and direct labor hours:Estimated Total Manufacturing Overhead for the year: $300,000 Estimated Total Direct Labor Hours for the year: 24,000 2 What is the annual breakeven point in (a) units sold and (b) revenues for the prospective store? 3 If 55,000 units are sold, what will be the store's operating profit (loss)? 4 If sales commissions were discounted for individual salespeople in favor of an $41,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold and (b) revenues? 5 Refer to the original data. If the store manager were paid $1.30 per unit sold in addition to her current fixed salary, what would be the annual breakeven point in (a) units sold and (b) revenues? 6 Refer to the original data. If the store manager were paid $1.30 per unit commission on each unit sold in excess of the breakeven point, what would be the store's operating profit if 70,000 units were sold? (This is $1.30 is in addition to both the commission paid to the sales staff and the store manager's fixed salary.) 7 Calculate the number of units sold where the operating profit under (a)a fixed salary plan and (b) a lower fixed salary and commission plan (for salespeople only) would be equal. Above that number of units sold, one plan would be more profitable than the other; below that number of units sold, the reverse would occur. 8 Calculate the operating profit or loss under each plan in question 6 (above) at a sales level of (a) 50,000 units and (b) 60,000 units. 9 Suppose the target operating profit is $268,000. How many units must be sold to reach the target under (a) the fixed salary plan and (b) the lower fixed salary and commission plan
