Question
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
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. The store 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 | $60 |
Cost of pants | $29.50 |
Sales commissions | $4.50 |
Total variable costs | $34 |
|
|
Annual fixed costs: |
|
Rent | $260,000 |
Salaries | $200,000 |
Advertising | $90,000 |
Other fixed costs | $70,000 |
Total fixed costs | $620,000 |
- 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 stores 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 managers fixed salary.) (The breakeven point is calculated to be 23,846 units or $1,430,760)
- 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.
- Calculate the operating profit or loss under each plan in question 7 (above) at a sales level of (a) 50,000 units and (b) 60,000 units.
- Suppose the target operating profit is $368,000. 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?
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