849 words - 4 pages

The Fashion Shoe Company operates a chain of women’s shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on each pair of shoes sold (in addition to a small basic salary) in order to encourage them to be aggressive in their sales efforts. The following worksheet contains cost and revenue data for Shop 48 and is typical of the company’s many outlets: Per Pair of Shoes Selling price $ 30.00 Variable expenses: Invoice cost $ 13.50 Sales commission 4.50 Total variable expenses $ 18.00 Annual Fixed expenses: Advertising $ 30,000 Rent 20,000 Salaries 100,000 Total fixed expenses $ ...view middle of the document...

| 1. |Profit |= Unit CM × Q − Fixed expenses |

| |$0 |= ($30 − $18) × Q − $150,000 |

| |$0 |= ($12) × Q − $150,000 |

| |$12Q |= $150,000 |

| |Q |= $150,000 ÷ $12 |

| |Q |= 12,500 pairs |

12,500 pairs × $30 per pair = $375,000 in sales

Alternative solution:

[pic]

2. See the graph on the following page.

3. The simplest approach is:

|Break-even sales |12,500 pairs |

|Actual sales |12,000 pairs |

|Sales short of break-even | 500 pairs |

500 pairs × $12 contribution margin per pair = $6,000 loss

Alternative solution:

|Sales (12,000 pairs × $30.00 per pair) |$360,000 |

|Variable expenses | 216,000 |

|(12,000 pairs × $18.00 per pair) | |

|Contribution margin |144,000 |

|Fixed expenses | 150,000 |

|Net operating loss |($ 6,000) |

4. The variable expenses will now be $18.75 ($18.00 + $0.75) per pair, and the contribution margin will be $11.25 ($30.00 – $18.75) per pair.

| |Profit |= Unit CM × Q − Fixed expenses |

| |$0 |= ($30.00 − $18.75) × Q − $150,000 |

| |$0 |= ($11.25) × Q − $150,000 |

| |$11.25Q |= $150,000 |

| |Q |= $150,000 ÷ $11.25 |

| |Q |= 13,333 pairs (rounded) |

13,333 pairs × $30.00 per pair = $400,000 in sales

Alternative solution:

[pic]

5. The simplest approach is:

|Actual sales | 15,000 pairs ...

Beat writer's block and start your paper with the best examples