BASIC COST VOLUME PROFIT ANALYSIS CASE

Shoes Unlimited operates a chain of shoes stores that carry many styles of shoes that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays substantial sales commissions on each shoes sold. Sales personnel also receive a small salary.

The following data contains cost and revenue data for Store # 20. These data is typical on the company’s many stores.

Per pair of shoes Selling price $ 50

Variable expenses

Invoice cost $20 Sales commission $8

Total variable expenses $ 28

Fixed expenses annual Rent $ 100,000 Advertising 200,000 Salaries 80,000

Total fixed expenses $ 380,000

Required :

1. Calculate the annual break-even point in dollar and in unit sales Break-even point in unit sales (NUMBER OF SHIRTS) shirts Break-even point in dollar sales $ ???? 2. If 20,000 pairs of shoes are sold in the year, what would be net operating income or loss? Net operating loss $????

3. The company is considering paying the store manager an incentive commission of $ 4 per pair of shoes (I addition to the sales person’s commissions) . If this change is made, what will be the new break – even point in dollar and units ?? ( use original data) New break-even point in unit sales NUMBER OF shirts New break-even point in dollar sales $ ???

4. If the company eliminated sales commissions entirely and increasing fixed salaries by $150,000 annually.

a. What will be the new break-even point in dollar sales ? NO LAYOUT THIS IS FREESTYLE b. Would you recommend that change ? Explain NO LAYOUT THIS IS FREESTYLE

 

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