Question

The WalkRite Shoe Company operates a chain of shoe stores that sell 10 different styles of inexpensive​ men's shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. WalkRite is considering opening another store that is expected to have the revenue and cost relationships shown here.

Unit Variable Data (per pair of shoes)			Annual Fixed Costs
Selling price	$50.00		Rent	$30,000
Cost of shoes	$25.00		Salaries	180,000
Sales commission	1.00		Advertising	38,000
Variable cost per unit	$26.00		Other fixed costs	16,000
			Total fixed costs	$264,000

Consider each question independently.

1.	What is the annual breakeven point in​ (a) units sold and​ (b) revenues?
2.	If 38,000 units are​ sold, what will be the​ store's operating income​ (loss)?
3.	If sales commissions are discontinued and fixed salaries are raised by a total of $6,000​, what would be the annual breakeven point in​ (a) units sold and​ (b) revenues?
4.	Refer to the original data.​ If, in addition to his fixed​ salary, the store manager is paid a commission of $2.00 per unit​ sold, what would be the annual breakeven point in​ (a) units sold and​ (b) revenues?
5.	Refer to the original data.​ If, in addition to his fixed​ salary, the store manager is paid a commission of $2.00 per unit in excess of the breakeven​ point, what would be the​ store's operating income if 50,000 units were​ sold?

Requirement 1a. What is the annual breakeven point in units​ sold?

Determine the formula used to calculate the breakeven number of​ units, then calculate the number of units that must be sold to break even.

Fixed costs

/

Contribution margin per unit

=

Breakeven number of units

Requirement 1b. What is the annual breakeven point in​ revenues?

Determine the formula used to calculate the breakeven​ revenue, then calculate

WalkRite​'s annual breakeven point in revenues.

Breakeven number of units

x

Selling price

=

Breakeven revenues

Requirement 2. If 38,000 units are​ sold, what will be the​ store's operating income​ (loss)?

Determine the formula used to calculate the operating income​ (loss) and then enter the amounts to determine the​ store's operating income​ (loss). ​(Use parentheses or a minus sign for a​ loss.)

							Operating
(	Contribution margin per unit	x	Quantity of units sold	) -	Fixed costs	=	income (loss)

Requirement 3a. If sales commissions are discontinued and fixed salaries are raised by a total of $6,000​,

what would be the annual breakeven point in units​ sold?

The annual breakeven point in units sold would be

units.

Requirement 3b. If sales commissions are discontinued and fixed salaries are raised by a total of $6,000​,

what would be the annual breakeven point in​ revenues?

The annual breakeven point in revenues would be $

.

Requirement 4a. Refer to the original data.​ If, in addition to his fixed​ salary, the store manager is paid a commission of $2.00

per unit​ sold, what would be the annual breakeven point in units​ sold? ​(Do not round any of your​ calculations.)

The annual breakeven point in units sold would be

units.

Requirement 4b. Refer to the original data.​ If, in addition to his fixed​ salary, the store manager is paid a commission of $2.00

per unit​ sold, what would be the annual breakeven point in​ revenues? ​(Do not round any of your​ calculations.)

Using the same information as requirement​ 4a, calculate the breakeven point in revenues.

The annual breakeven point in revenues would be $

.

Requirement 5. Refer to the original data.​ If, in addition to his fixed​ salary, the store manager is paid a commission of $2.00

per unit in excess of the breakeven​ point, what would be the​ store's operating income if 50,000

units were​ sold? ​(Do not round any of your​ calculations.)

Operating income would be $

Answer 1

Answer with working notes is given below

Selling price Less: Variable cost Cost of shoes Sales commission Contribution per unit $26 48.00% Contribution Margin % (Contribution/Sales)% 1 a) Break even point in Units Fixed Cost Contribution per unit $264,000 $24 1 b) Break even point in Sales Dollars Fixed Cost $264,000 Contribution Margin % 48.00% 11,000 $550,000 1 Alternatively, Breakeven Units X selling price 1 1,000* 50 $550,000 2 Operating Income if 38,000 units are sold Sales $1,900,000 (38,000*$50) Variable Cost $988,000 (38,000*$26) Contribution $912,000 Fixed Cost $264,000 Net Operating Income $648,000 3 a) Break even point in Units Revised Fixed Cost Revised Contribution per unit) $270,000 $25 3 b) Break even point in Sales Dollars Fixed Cost $270,000 Contribution Margin % 50.00% 10,800 $540,000 Alternatively, Breakeven Units X selling price 1 0,800* 50 $540,000 Working notes: 1 Revised Fixed cost Existing Fixed cost Fixed salaries increase Revised Fixed cost $264,000 $6,000 $270,000 Selling price Less: Variable cost Cost of shoes Revised Contribution per unit 50.00% Contribution Margin % (Contribution/Sales)% 4 a) Break even point in Units Fixed Cost Contribution per unit $264,000 $221 1 4 b) Break even point in Sales Dollars Fixed Cost Contribution Margin % 44.00% $264,000 $500,000 12,000 14 Alternatively, Breakeven Units X selling price 12,000* 50 $600,000 Working notes: Selling price Less: Variable cost Cost of shoes Sales commission ( $1 +$2) Contribution per unit $22 44.00% Contribution Margin % (Contribution/Sales)% 5 $2,500,000(50,000*$50) Sales Variable cost Cost of shoes -(50,000*$25) Sales commission as per WN Contribution Fixed Cost Net Operating Income $1,250,000 $128,000 $1,378,000 $1,122,000 $264,000 $858,000 Break even point in Units Fixed Cost Contribution per unit $264,000 $24 11,000 Sales commission Existing - 50,000*$1 In excess of Break even point (50,000-11,000) *$2 Sales commission $50,000 $78,000 $128,000