Reference no: EM132542798

The Hiking Shop is a store that specializes in hiking shoes. The owner, Angelo, has just received a degree in business and is anxious to apply the principles he has learned to his business. In time, he hopes to open a second shop. As a first step, he has prepared the following monthly analysis for his new store:

                                   Monthly

Sales (3,000 pairs)         $150,000

Variable Costs                 60,000

Contribution Margin        90,000

Fixed Costs                  75,000

Net Income                 $ 15,000

Question 1. How many hiking shoes must be sold each year to break even? (2 pts)

Question 2. Angelo must earn $22,000 of monthly net income to afford his lifestyle. How many pairs of hiking shoes must be sold to reach this target profit?

Question 3. Angelo has taken a managerial accounting graduate class. He came up with the following scenario that he thinks will allow him to reach his goal.

• The Hiking Shop has two sales people (all sales are made by these 2 people) currently making a fixed salary of $2,500 per person per month. Angelo will change these employees from salary to 100% sales commission. The 2 sales people will earn a 10% sales commission for all hiking shoes sold. He thinks this will motivate the employees to sell more so units sold will increase by 1,000 units.

• Lastly, Angelo thinks advertising is important. He wants to increase advertising by $10,000 per month. He thinks this will raise units sold by an additional 350 units.

What can be the proposed income statement based on Angelo's ideas. Calculate the new break even in units. Should Angelo introduce these changes?

Question 4. What can be your own scenario. Be as creative as you want. Provide detailed ideas, your proposed income statement and calculate a new breakeven. Was your suggestion successful?