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.)

5. Refer to the original data. As an alternative to (4) above, the company is considering paying the Shop 48 store manager 50 cents commission on each pair of shoes sold in excess of the break-even point. If this change is made, what will be Shop 48's net operating income (loss) if 14,200 pairs of shoes are sold? (Do not round intermediate calculations.)

Lin Corporation has a single product whose selling price is $140 per unit and whose variable expense is $70 per unit. The company’s monthly fixed expense is $31,800.

Required:

1. Calculate the unit sales needed to attain a target profit of $6,700. (Do not round intermediate calculations.)

2. Calculate the dollar sales needed to attain a target profit of $9,600. (Round your intermediate calculations to the nearest whole number.)

Answer 1

4) revised break even point (units) = total fixed cost/(selling price - revised variable cost)

= $171000/(30-15.75)

= 12000 units

Break even point in dollar = 12000 units × $30 = $360000

5)

Original break even point = $171000/($30-$15) = 11400 units

Revised net operating income/loss = sales in excess of break even × (sales price - revised variable cost)

= (14200-11400)×($30-$15.5)

= 2800×$14.5 = $40600

.

1)

Let X be units sold,

X = (FC + profit) / ( price - Variable cost)

X = (31,800 + 6,700) / (140 - 70)

X = 550 units

2) let X be dollar sales

X = [(FC + profit) / ( price - Variable cost)] × sale price

X = [(31,800 + 9600) / (140 - 70)] × $140

X = 591 × $140

= $82740