Question

1

Bubba's Western Wear is a western hat retailer in Lubbock, Texas. Although Bubba's carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is really humming, and sales growth at Bubba's has been great The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. $ 80.00 Sales price Per unit variable expenses Purchase cost Sales commissions 43.50 11.50 $ 55.00 Total per unit variable costs Total annual fixed expenses Advertising Rent Salaries $ 98,50e 146,500 255,009 $500,000 Total fixed expenses

Answer 1

hi, please find below the answer let me know if you need any clarification -

Given that -
Sales price		80
Variable cost
Purchase cost		43.5
Sales commmission		11.5
Total variable cost		55
Fixed cost
Advertisement		98500
Rent		146500
Salaries		255000
Total fixed cost		500000
Answer 1)
i	Sales price		$   80.00
ii	Total variable cost		$   55.00
iii =i-ii	Contribution margin		$   25.00
iv=iii/i	Contribution margin ratio		31.25%
Break even unit	Break even unit = Fixed cost / Contribution margin
	=500000/25
	20000	unit
Break even $ sales	Break even $ sales = Fixed cost / Contribution margin ratio
	=500000/31.25%
	$                               1,600,000
Answer 2)
	Before tax income with 22000 unit of hats = Contribution margin per unit * 22000-fixed cost
	=25*22000-500000
	50000
	Contribution income statement
	Sales =22000*80		1760000
	Variable cost = 22000*55		1210000
	Contribution margin		550000
	Fixed cost		500000
	Before tax income		50000
Answer 3)
	Margin of safety $ = Actual sales - break even sales
	=32000*80-20000*80
	960000
	Margin of safety unit = Actual sales - break even sales
	=32000-20000
	12000
	Margin of safety ratio = (Actual sales - break even sales)/Actuals sales
	=(32000-20000)/32000
	37.50%
Answer 4)
	Break even point with new plan
	Sales per unit =	80
	revised variable cost =	43.5
	Contribution per unit	36.5
	Fixed cost	657000
	=500000+157000
	Break even point = 657000/36.5		18000
	Profit and loss with 22000 unit sold
	Contribution = 22000*36.5		803000
	Less fixed cost		657000
	Before tax earning		146000