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The Racketeer Company operates a chain of stores that sell different styles of inexpensive racquets (for playing tennis or squash) with identical unit costs
The Racketeer Company operates a chain of stores that sell different styles of inexpensive racquets (for playing tennis or squash) with identical unit costs and selling prices. Each store manager is paid a fixed salary. Salespeople are paid a fixed salary plus a sales commission'. The Racketeer Company is considering opening a new store that is expected to have the revenue and cost relationships shown here. Unit Variable Costs Selling price Cost of racquets Sales commission Annual Fixed Costs $120 40 Rent $42,000 Salaries 150,000 8 Advertising 75,000 Other fixed costs 35,400 Total fixed costs 302,400 Required: (Show all calculations) 1. What is the annual breakeven point in sales revenue? (4 points) 2. How many racquets need to be sold to achieve a profit of $54,000? (4 points) 3. Racketeer is contemplating a change in how salespeople are paid. If sales commissions are discontinued and fixed salaries are raised by a total of $40,000 (from $150,000 to $190,000), what would be the annual breakeven point in units sold? (4 points) 4. Assuming salespeople are paid a fixed salary plus sales commission', calculate operating leverage at the sales level you calculated in requirement 2. (4 points) 5. What range of sales would The Racketeer Company prefer paying salespeople a fixed salary plus a commission' versus paying the proposed 'fixed salary only"? (4 points)
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