Question

walk right shoes

The Walk Rite Shoe Company operates a chain of shoe stores. The stores sell ten 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. Walk Rite is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships: $ 90.00 54.00 0.08 60.00 369 $ Unit variable data (per pair of shoes Selling price Cost of shoes Sales commissions Total variable costs Annual fixed costs Rent Salaries Advertising Other fixed costs Total fixed costs $60,000 126,000 280,000 94,000 250.000 750.000 250000 60,000 Required: Consider each question independently. 2 What is the annual breakeven point in (a) units sold, and (b) revenues? If 24,000 units are sold, what will be the store's operating income (loss)? 3 If sales commissions were discontinued for individual salespeople in favor of an $60,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold, and (b) revenues? Su 000. Refer to the original data. If the store manager were paid $5.00 per unit sold in addition to the current commissions, what would be the annual breakeven point in (a) units sold, and (b) revenues? !

Answer 1

a. break even point = fixed cost / contribution margin per unit

contribution margin per unit = sales-variable cost

=90-60

=30$

break even point = 750000/30

=25000units

break even sales

=contribution margin ratio = contribution margin/sales

=30/90

=33.333%

break even sales dollar= fixed cost/contribution margin ratio

=750000/33.3333%

=2,250,000$

2.

sales	2,160,000[24000*90]
less:
variable cost	1440000[60*24000]
contribution margin	720000[2160000-1440000]
less fixed cost	750000
income(loss)	30000$

3.variable cost = 54$ (sales commission discontinued)

fixed cost =750000+60000

=810000$

contribution margin per unit= 90-54

=36$

break even units = 810000/36

=22500units

sales(dollar)

=810000 / (36/90)

2025000$

4.variable cost = 60+5$ additional = 65$

contribution margin = 90 -65 =25$

contribution margin unit= 810000/25

=32400units

contribution margin sales = 810000/ (25/90)

=2916000$