Reference no: EM13177406

CVP analysis, shoe stores. The WalkRite Shoe Company operates a chain of shoe stores that sell 10 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. WalkRite is considering opening another store that is expected to have the revenue and cost relationships shown here:

1	Unit Variable Data (per pair of shoes)					Annual Fixed Costs
2	Selling Price			$30.00		Rent		$60,000
3	Cost of shoes			$19.50		Salaries		200,000
4	Sales commission			$1.50		Advertising		80,000
5	Variable cost per unit			$21.00		Other fixed costs		20,000
6						Total fixed costs		$360,000

Consider each question independently: Required

1. What is the annual breakeven point in (a) units sold and (b) revenues?

A) Break-even point in units = Fixed cost/(Selling price per unit - Variable cost per unit) $40,000 actually 40,000 units

B) Break-even point in revenue = Break-even point in units* selling price per pair $1,200,000

2. If 35,000 units are sold, what will be the store's operating income (loss)?

Contribution per unit = Selling price per unit - Variable cost per unit

$9.00

Total contribution = number of units that are sold* contribution per unit

$315,000

Operating income (loss) = Total contributions of units sold - Total fixed cost

($45,000)

3. If sales commissions are discontinued and fixed salaries are raised by a total of $81,000, what would be the annual breakeven point in (a) units sold and (b) revenues?

A) Total fixed costs = originally reported fixed costs + the raise in fixed salaries

$441,000

Break-even point in units = Fixed costs/(Selling price per unit - Variable cost per unit) $49,000 actually 49,000 units

B) Break-even point in revenues = Break-even point in units*selling price per pair

$1,470,000

4. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $0.30 per unit sold, what would be the annual breakeven point in (a) units sold and (b) revenues?

A) Total variable cost per pair of shoes if manager is paid a commission of $.30 per unit sold = Orginal variable costs + managers commission
$21.30

Contibution per unit = Selling price per unit - Variable cost per unit $8.70

Break-even point in units = Fixed costs/(Selling price per unit - Variable cost per unit) $41,379.31 actually 41,380 units sold

B) Break-even point in revenues = Break-even in units sold*selling price per pair $1,241,400

5. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $0.30 per unit in excess of the breakeven point, what would be the store's operating income if 50,000 units were sold?

Total revenue = number of shoes sold * selling price
$1,500,000
Cost of shoes = number of shoes*cost of shoes per pair
$975,000
Sales commission if $.30 per pair*number of shoes sold
$15,000
Operating income
Revenue			$1,500,000
Less:
Cost of shoes		$975,000
Sales commission		$15,000
Total fixed costs		$360,000
Total cost			$150,000
Operating income			$1,350,000