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PROBLEM 5–19 Basic CVP Analysis; Graphing [L01, LO2, LO4, LO6] Shirts Unlimited 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 worksheet contains cost and revenue data for Store 36. These data are typical of the company's many outlets: A C Per Shift 2 Selling price S 40.00 4 Variable expenses: Invoice cost $ 18.00 6 Sales commission 7.00 7 Total variable expenses S 25.00 9 Annual 10 Fixed expenses: S 80,000 150,000 70,000 11 Rent Advertising Salaries Total fixed expenses 12 13 14 $ 300,000 15 16 K Sheet1 Sheet2 Sheel 1 00

PROBLEM 5–19 Basic CVP Analysis; Graphing [L01, LO2, LO4, LO6] Shirts Unlimited 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 worksheet contains cost and revenue data for Store 36. These data are typical of the company's many outlets: A C Per Shift 2 Selling price S 40.00 4 Variable expenses: Invoice cost $ 18.00 6 Sales commission 7.00 7 Total variable expenses S 25.00 9 Annual 10 Fixed expenses: S 80,000 150,000 70,000 11 Rent Advertising Salaries Total fixed expenses 12 13 14 $ 300,000 15 16 K Sheet1 Sheet2 Sheel 1 00

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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PROBLEM 5–19 Basic CVP Analysis; Graphing [LO1, LO2, LO4, LO6] Shirts Unlimited 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 worksheet contains cost and revenue data for Store 36. These data are typical of the company's many outlets: A B 1 Per Shift 2 Selling price $ 40.00 3 4 Variable expenses: 5 Invoice cost S 18.00 6 Sales commission Total variable expenses 7.00 7 $ 25.00 8 Annual 10 Fixed expenses: 11 Rent $ 80,000 Advertising 150,000 70,000 $ 300,000 12 13 Salaries 14 Total fixed expenses 15 16 K Sheet1 Sheet2 Sheel
Transcribed Image Text:PROBLEM 5–19 Basic CVP Analysis; Graphing [LO1, LO2, LO4, LO6] Shirts Unlimited 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 worksheet contains cost and revenue data for Store 36. These data are typical of the company's many outlets: A B 1 Per Shift 2 Selling price $ 40.00 3 4 Variable expenses: 5 Invoice cost S 18.00 6 Sales commission Total variable expenses 7.00 7 $ 25.00 8 Annual 10 Fixed expenses: 11 Rent $ 80,000 Advertising 150,000 70,000 $ 300,000 12 13 Salaries 14 Total fixed expenses 15 16 K Sheet1 Sheet2 Sheel
The company has asked you, as a member of its planning group, to assist in some basic analy- sis of its stores and company policies. Required: 1. Calculate the annual break-even point in dollar sales and in unit sales for Store 36. 2. Prepare a CVP graph showing cost and revenue data for Store 36 from zero shirts up to 30,000 shirts sold each year. Clearly indicate the break-even point on the graph. 3. If 19,000 shirts are sold in a year, what would be Store 36's net operating income or loss? The company is considering paying the store manager of Store 36 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? 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 23,500 shirts are sold in a year? 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 36? b. Would you recommend that the change be made? Explain.
Transcribed Image Text:The company has asked you, as a member of its planning group, to assist in some basic analy- sis of its stores and company policies. Required: 1. Calculate the annual break-even point in dollar sales and in unit sales for Store 36. 2. Prepare a CVP graph showing cost and revenue data for Store 36 from zero shirts up to 30,000 shirts sold each year. Clearly indicate the break-even point on the graph. 3. If 19,000 shirts are sold in a year, what would be Store 36's net operating income or loss? The company is considering paying the store manager of Store 36 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? 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 23,500 shirts are sold in a year? 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 36? b. Would you recommend that the change be made? Explain.
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