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 $ 40.00 Variable expenses: Invoice cost $ 16.00 Sales commission 4.00 Total variable expenses $ 20.00 Annual Fixed expenses: Advertising $ 45,000 Rent 31,000 Salaries 155,000 Total fixed expenses $ 231,000 4. The company is considering paying the Shop 48 store manager an incentive commission of 80 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?

Answer 1

Selling Price	40.00
Variable cost
Invoice Cost	(16.00)
Sales Commission	(4.00)
Incentive	(0.80)
Contribution	19.20
Fixed Expense
Advertising	45,000.00
Rent	31,000.00
Salaries	155,000.00
Total Fixed Cost	231,000.00
Break Even Point=	Fixed Cost/Contribution
Break Even Point=	231000/19.20
Break Even Point-Units=	12,031.25
Break Even Point-Sale=	481,250