Question

Required Homauon (The following information applies to the questions displayed below) 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 $ 25.00 Selling price Variable expenses Invoice cost Sales commission Total variable expenses 10.50 Advertising $ 60,000 180,000 $257.000 Total fixed expenses 4. The company is considering paying the Shop 48 store manager an incentive commission of 70 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 (Do not round intermediate calculations. Round your final answers to the nearest whole number.) New break-even point in unt sales New break-even point in doar sales

Answer 1

Variable cost will increase by 70 cents per pair of shoes.

New variable cost per pair = 15 + 0.70

= $15.70

Selling price per pair = $25

Contribution margin per pair = Selling price per pair – Variable cost per pair

= 25 - 15.70

= $9.30

Contribution margin ratio = Contribution margin per pair/Selling price per pair

= 9.30/25

= 37.2%

Break even point in units = Fixed cost/Contribution margin per pair

= 257,000/9.30

= 27,635 pairs

Break even sales in dollars = Break even point in units x Selling price per pair

= 27,635 X 25

= $690,875

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