The Fashion Shoe Company operates a chain of women's shoe shops carrying many styles of shoes all sold for $30 per pair. Sales personnel in the shops are paid a sales commission on each pair of shoes sold plus a small base salary. The following data pertain to Shop 48 and are typical of the company's many outlets: Selling price Variable expenses: Invoice cost Sales commission Total variable expenses Fixed expenses: Advertising Rent Salaries Total fixed expenses Per Pair of Shoes $30.00 $13.50 4.50 $18.00 Annual $ 30,000 20,000 100,000 $150,000
The Fashion Shoe Company operates a chain of women's shoe shops carrying many styles of shoes all sold for $30 per pair. Sales personnel in the shops are paid a sales commission on each pair of shoes sold plus a small base salary. The following data pertain to Shop 48 and are typical of the company's many outlets: Selling price Variable expenses: Invoice cost Sales commission Total variable expenses Fixed expenses: Advertising Rent Salaries Total fixed expenses Per Pair of Shoes $30.00 $13.50 4.50 $18.00 Annual $ 30,000 20,000 100,000 $150,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
A-6
Transcribed Image Text:The Fashion Shoe Company operates a chain of women's shoe shops carrying many styles of shoes all sold for $30 per pair. Sales
personnel in the shops are paid a sales commission on each pair of shoes sold plus a small base salary.
The following data pertain to Shop 48 and are typical of the company's many outlets:
Selling price
Variable expenses:
Invoice cost
Sales commission
Total variable expenses
Fixed expenses:
Advertising
Rent
Salaries
Total fixed expenses
Per Pair of
Shoes
$30.00
$13.50
4.50
$18.00
Annual
$ 30,000
20,000
100,000
$150,000
Transcribed Image Text:Required:
1. What is Shop 48's annual break-even point in unit sales and dollar sales?
2. Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000 pairs of shoes sold each year. Clearly
indicate the break-even point on the graph.
Page 232
3. If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income (loss)?
4. The company is considering paying the Shop 48 store manager an incentive commission of 75 cents per pair of shoes (in addition to the
salesperson's commission). If this change is made, what will be the new break-even point in unit sales and dollar sales?
5. Refer to the original data. As an alternative to (4) above, the company is considering paying the Shop 48 store manager 50 cents
commission on each pair of shoes sold in excess of the break-even point. If this change is made, what will be Shop 48's net operating
income (loss) if 15,000 pairs of shoes are sold?
6. Refer to the original data. The company is considering eliminating sales commissions entirely in its shops and increasing fixed salaries by
$31,500 annually. If this change is made, what will be Shop 48's new break-even point in unit sales and dollar sales? Would you
recommend this change be made? Explain.
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