Question
The Walk Rite Shoe Company operates a chain of shoe stores. The stores sell ten different styles of inexpensive men's shoes with identical unit costs
The Walk Rite Shoe Company operates a chain of shoe stores. The stores sell ten different styles of inexpensive men's shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Walk Rite is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:
Selling price $30.00
Unit variable cost per pair:
Cost of shoes $19.50
Sales commissions 1.50
Total variable costs $21.00
Annual fixed costs:
Rent $60,000
Salaries 200,000
Advertising 80,000
Other fixed costs 20,000
Total fixed costs $360,000
Requirements
(Consider each question independently.)
1. | What is the annual breakeven point in (a) units sold and (b) revenues? |
2. | If 35,000 units are sold, what will be the store's operating income (loss)? |
3. | If sales commissions were discontinued for individual salespeople in favour of an $81,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold and (b) revenues? |
4. | Refer to the original data. If the store manager were paid $0.30 per unit sold in addition to his current fixed salary, 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 $0.30 per unit commission on each unit sold in excess of the breakeven point, what would be the store's operating income if 50,000 units were sold? (This $0.30 is in addition to both the commission paid to the sales staff and the store manager's fixed salary.) |
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