Question

The Fashion Shoe Company operates a chain of women’s shoe shops that carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a sales commission on each pair of shoes sold plus a small base salary. The following data pertains to Shop 48 and is typical of the company’s many outlets: Per Pair of Shoes Selling price $ 40.00 Variable expenses: Invoice cost $ 19.50 Sales commission 4.50 Total variable expenses $ 24.00 Annual Fixed expenses: Advertising $ 38,000 Rent 28,000 Salaries 140,000 Total fixed expenses $ 206,000 Problem 5-26 Part 1 Required: 1. What is Shop 48's annual break-even point in unit sales and dollar sales?

Answer 1

Breakeven point in Unit sales

Break even point = Fixed Expenses / Contribution per unit = 206,000 / (40 - 24) = 12,875 pair of shoes

Breakeven in dollar sales

Break even in dollars = Breakeven in units X Selling price = 12,875 X 40 = $ 515,000

Here is the proof

Sales	$ 515,000
Variable Cost
Invoice Cost	$ 251,063
Sales commission	$   57,938
Contribution	$ 206,000
Fixed Costs
Advertising	$   38,000
Rent	$   28,000
Salaries	$ 140,000
Total fixed costs	$ 206,000
Net Income	$            -