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
Selling price		$	30.00
Variable expenses:
Invoice cost		$	11.00
Sales commission			4.00
Total variable expenses		$	15.00
			Annual
Fixed expenses:
Advertising		$	33,000
Rent			23,000
Salaries			115,000
Total fixed expenses		$	171,000

4. The company is considering paying the Shop 48 store manager an incentive commission of 75 cents per pair of shoes (in addition to the salesperson’s commission). If this change is made, what will be the new break-even point in unit sales and dollar sales? (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

Answer 1

4. The company is considering paying the Shop 48 store manager an incentive commission of 75 cents per pair of shoes (in addition to the salesperson’s commission). If this change is made, what will be the new break-even point in unit sales and dollar sales? (Do not round intermediate calculations. Round your final answers to the nearest whole number.)

new Contribution margin = 30 - ( 15 + 0.75 ) = $ 14.25

Fixed costs = 171000

New BEP ( units ) = 171000 / 14.25 = 12000 units

CM ratio = 14.25 / 30 = 47.50%

BEP ( dollars ) = 171000 / 47.50% = $ 360000