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 $ 30.00 Selling price Variable expenses: $ 13.50 Invoice cost Sales commission 4.50 $ 18.0e Annual Total variable expenses Fixed expenses: Advertising Rent Salaries $30,000 20,000 100,000 $150,0060 Total fixed expenses

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Answer 1

Part 5)

The revised net operating income/loss can be calculated with the use of following formula:

Revised Net Operating Income/Loss = Sales in Excess of Break Even*(Selling Price - Revised Variable Cost)

Break even sales= 150000/ (30-18)

12500

Revised Variable Cost = 18 +0.50 = $18.50

Revised Net Operating Income/Loss = (15,000 - 12,500)*(30 - 18.50) = $28,750

____________

Part 6a)

Revised Fixed Cost = 30,000 + 20,000 + (100,000 + 31500) = $181,500

Revised Variable Cost = $ 13.50 per unit [commission completely eliminated]

____________

Using these values in the formulas for break even point, we get,

Revised Break Even Point (Units) = (181500)/(30 - 13.50) = 11,000 pairs

Revised Break Even Point (Dollars) = 11000*30 = $330,000