Question 3 (40 marks) Manchester Clothing operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold. Sales personnel also receive a small basic salary. The following table contains cost and revenue data for Store 52. These data are typical of the company's many outlets: $ 40.00 $ 18.00 7.00 $ 25.00 Selling price per shirt Variable expenses per shirt: Invoice cost. Sales commission. Total variable expenses per shirt Fixed expenses per year: Rent Advertising Salaries. Total fixed expenses per year. $ 80,000 150,000 70,000 $300,000 The company has asked you, as a member of its planning group, to assist in some basic analysis of its stores and company policies. Required: 1. Calculate the annual break-even point in dollar sales and in unit sales for Store 52. (4 marks) 2. Prepare a CVP graph showing cost and revenue data for Store 52 from zero shirts up to 30,000 shirts sold each year. Please show all the necessary information. (8 marks) 3. If 23,000 shirts are sold in a year, what would be Store 52's net operating income or loss? (5 marks) 4. The company is considering paying the store manager of Store 52 an incentive commission of $3 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales? (5 marks) 5. Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager a $3 commission on each shirt sold in excess of the break- even point. If this change is made, what will be the store's net operating income or loss if 26,500 shirts are sold in a year? (6 marks) 6. Refer to the original data. The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $107,000 annually. a. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 52? (4 marks) b. Would you recommend that the change be made? Explain. (5 marks) 7. List any THREE assumptions when using the CVP analysis. (3 marks) Question 3 (40 marks) Manchester Clothing operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold. Sales personnel also receive a small basic salary. The following table contains cost and revenue data for Store 52. These data are typical of the company's many outlets: $ 40.00 $ 18.00 7.00 $ 25.00 Selling price per shirt Variable expenses per shirt: Invoice cost. Sales commission. Total variable expenses per shirt Fixed expenses per year: Rent Advertising Salaries. Total fixed expenses per year. $ 80,000 150,000 70,000 $300,000 The company has asked you, as a member of its planning group, to assist in some basic analysis of its stores and company policies. Required: 1. Calculate the annual break-even point in dollar sales and in unit sales for Store 52. (4 marks) 2. Prepare a CVP graph showing cost and revenue data for Store 52 from zero shirts up to 30,000 shirts sold each year. Please show all the necessary information. (8 marks) 3. If 23,000 shirts are sold in a year, what would be Store 52's net operating income or loss? (5 marks) 4. The company is considering paying the store manager of Store 52 an incentive commission of $3 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales? (5 marks) 5. Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager a $3 commission on each shirt sold in excess of the break- even point. If this change is made, what will be the store's net operating income or loss if 26,500 shirts are sold in a year? (6 marks) 6. Refer to the original data. The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $107,000 annually. a. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 52? (4 marks) b. Would you recommend that the change be made? Explain. (5 marks) 7. List any THREE assumptions when using the CVP analysis
