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		$	20.00
Variable expenses:
Invoice cost		$	7.00
Sales commission			3.00
Total variable expenses		$	10.00
			Annual
Fixed expenses:
Advertising		$	32,000
Rent			21,000
Salaries			105,000
Total fixed expenses		$	158,000

Problem 5-26 Part 3

3. If 15,200 pairs of shoes are sold in a year, what would be Shop 48’s net operating income (loss)

Answer 1

Contribution margin per pair = Selling price per pair - Total variable expense per pair

= $20 - $10

= $10

Total Fixed cost = $158,000

Net operating income / (loss) = (15,200 pairs X $10) - $158,000

= ($6,000)

Net operating loss = $6,000