Calculation of breakeven point in dollars and units

Assignment Help Finance Basics
Reference no: EM13826953

Problem:

Hanks Western Wear is a western hat retailer in Lubbock, TX.  Although Hanks 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 large commissions to encourage them to be more aggressive in their sales efforts.  Currently, the Lubbock economy is really humming, and sales growth at Hank's has been great.  The business is very competitive, however, and Hank 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, Hank is also finding the management of certain aspects of the business, such as restocking of inventory and hiring and training new salespeople, more difficult.

Sales Price                                     $45.00
Per unit variable expenses
Purchase cost                                   25.50
Sales Commissions                             4.50
Total per unit variable costs             $30.00

Total annual fixed expenses
   Advertising                                      $22000
   Rent                                                 18000
   Salaries                                          185000
Total fixed expenses                         $225000

Required

1. Calculate the annual breakeven point in unit sales and dollar sales

2. If Hank sells 20,000 hats, what is its before-tax income or loss?

3. If Hank's sells 30,000 hats, what is its margin of safety and margin of safety ratio?

4. Hank is considering the elimination of sales commissions completely and increasing salaries by $106,500 annually.  What would be the new breakeven point in units?  What would be the before-tax income or loss if 20,000 hats are sold with the new salary plan?

5. Identify and discuss the strategic and ethical issues in the decision to eliminate sales commissions (see requirement 4)  How do these strategic concerns affect Hank's decision?

Summary of question:

This question is basically belongs to Finance as well as it explains about a condition of a hat business in Texas. Different questions about this scenario such as the computations of breakeven point in unit sales as well as dollar sales, the income tax for selling certain number of hats annually, the impact of breakeven point if commission on sales is replaced with increase in salaries, etc have been answered in the solution in detail with required calculations.

Reference no: EM13826953

Previous Q& A

  Essay on comparing china and australia on socio-political

Essay on Comparing China and Australia on Socio-Political and Economic Aspects

  Number of shares used to compute basic earnings per share

Charles Austin of the controller’s office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2015. Determine the number of shares used to compute basic earn..

  Richard ivey school of business-case study

Stuart's Branded Foods is not competitive in the market. Is there a different way that can be used to estimate the cost of services and products to the customers, such that the company can become competitive?

  Describe the hindu philosophical systems and forms

Describe the Hindu philosophical systems and forms of worship. Explain the origins of Hinduism

  Explain concepts of efficiency in relation to the ppc

The case study is related to a debate between the Ministry of Health and the Ministry of Education to establish a number of health centers and a number of training institutes respectively with limited and available resources.

  Determine the estimated depletion cost per barrel of oil

Exon Oil acquired the rights to various oil reserves at $ 20,000,000 in March 1, 2007. The estimated barrels of oil are 5,000,000 barrels. Determine the estimated depletion cost per barrel of oil. If 800,000 barrels are extracted the first year, what..

  Marketing plan for international entry

Marketing Plan for International Entry

  Prepare a literature review and strategic plan

Prepare a Literature Review and Strategic Plan - Develop a Strategic Plan for a Health Information Service and provide a Literature Review addressing strategic issues affecting Health Information Management Service/Departments.

  Discusses how muslims had come to the america

The question relates to the Religion. It is about the development of Islam in the United States. The answer discusses how Muslims had come to the America in the early 17th and late 19th centuries

  Cost method to record treasury stock transactions

A company’s stockholders' equity at January 1, 2014 is as follows: Acquired 6,000 shares of its stock for $270,000. Sold 3,600 treasury shares at $50 a share. Sold the remaining treasury shares at $41 per share. The company uses the cost method to re..

Reviews

Write a Review

 

Similar Q& A

  Calculate the annual lease payments

A Company has contracted to provide lease financing for a machine to automate an assembly line. Yearly lease payments will start at the beginning of each year.

  Description of the target market

A company provides its advertising agency with a statement about a new product to use in designing an advertising campaign, and this statement includes a description of the target market, the product type, the primary benefits of using the product..

  Describe two unethical practices of some financial managers

a describe three potential causes of errors in preparing projected i.e. pro forma financial statements for a company

  What is the maximum initial cost the company

What is the maximum initial cost the company would be willing to pay for the project?

  Whats the present value of 1675 discounted back 5 years if

whats the present value of 1675 discounted back 5 years if the appropriate interest rate is 6 compounded

  Will issue new common stock to finance an expansion the

given the following annual net cash flows determine the internal rate of return to the nearest whole percent of a

  Does michael porters concept of corporate shared value end

does michael porters concept of corporate shared value end the debate on shareholder primacy versus stakeholder primacy

  Constant interest coverage policy and leveraged value

How is the levered value of the project impacted by the constant interest coverage policy?

  As a result of the system the float time will be reduced

lockbox. doral corporation is considering a lockbox arrangement that will cost 216000 per year. average daily

  Which two investments would offer him growth

Barry is retired. Barry would like to invest some of his money on behalf of his 4 grand kids. Which two investments would offer him growth? US Treasury Securities, Mutual Funds, Call Contracts, Index Funds. Explain your anwser.

  Caroline weslin needs to decide whether to accept a bonus

caroline weslin needs to decide whether to accept a bonus of 1820 today or wait two years and receive 2100 then. she

  Find the six equal payments

The difference between the PV costs and the amount that would be in the savings account must be made up by the father's deposits, so find the six equal payments (starting immediately) that will compound to the required amount.]

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd