The Fashion Shoe Company operates a chain of women's shoe shops that carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a sales commission on each pair of shoes sold plus a small base salary. The following data pertains to Shop 48 and is typical of the company's many outlets: Per Pair of Shoes $ 30.00 Selling price Variable expenses: Invoice cost Sales commission Total variable expenses $ 13.50 4.50 18.00 Annual Fixed expenses: Advertising Rent Salaries $ 30,000 20,000 100,000 $ 150,000 Total fixed expenses Required: 1. What is Shop 48's annual break-even point in unit sales and dollar sales? 12,500 pairs Break-even point in unit sales Break-even point in dollar sales 3. If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income (loss)? 4. The company is considering paying the Shop 48 store manager 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 dollar sales? (Do not round intermediate calculations. Round your final answers to the nearest whole number.) pairs New break-even point in unit sales 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 Shop 48 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 Shop 48's net operating income (loss) if 15,000 pairs of shoes are sold? (Do not round intermediate calculations.) 6. Refer to the original data. The company is considering eliminating sales commissions entirely in its shops and increasing fixed salaries by $31,500 annually. If this change is made, what will Shop 48's new break-even point in unit sales and dollar sales? (Do not round intermediate calculations.) pairs New break-even point in unit sales New break even point in dollar sales 2. Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000 pairs of shoes sold each year. Clearly indicate the break-even point on the graph. (Use the line tool to draw a single line (Total Sales, Fixed Expense, Total Expense). This 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 x and y coordinates for each endpoint. Once all points have been plotted, click on the line (not individual points) and a tool icon will pop up. You can use this to enter exact co-ordinates for your points as needed. To remove a line/point from the graph, click on the line/point and select delete option.) Cost-volume-profit graph Fixed Expense Total Sales Total Expense 3900 5850 - $800- 3750 $700 3650- 3000 5550- $500 % $450 $400 $350 $300 $250 $200 - $150 $100 $50 SO Total Sales (000s) Break Even Point 0 10000 20000 30000 Number of Pairs of Shoes Sold
