Submitted by: Submitted by Theresa5
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Date Submitted: 09/23/2015 06:38 AM
CVP analysis, shoe stores.
The HighStep 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. HighStep is considering opening another store that is expected to have the revenue and cost relationships shown here.
UNIT VARIABLE DATA (per pair of shoes)
Selling price $60
Cost of shoes 37
Sales commission 3
Variable cost per unit 40
ANNUAL FIXED COSTS
Rent $30,000
Salaries 100,000
Advertising 40,000
Other fixed costs 10,000
TOTAL FIXED COSTS $180,000
REQUIREMENTS:
Consider each question independently:
1. What is the annual breakeven point in (a) units sold and (b) revenues?
Contribution margin per unit = Selling price - Variable cost per unit
$60 - $40 = $20
a. Units sold = Fixed costs/Contribution margin per unit
$180,000/$20 = 9,000 Units sold
b. Revenue = Units sold x Selling price
9,000 x $60 = $540,000 Revenue
2. If 8,000 units are sold, what will be the store’s operating income (loss)?
Operating Income = [Units sold (Selling price - variable costs per unit)] - Fixed costs
[8,000 ($60 - $40)] - $180,000 = $(20,000)
The store has an operating income loss of $20,000.
3. If sales commissions are discontinued and fixed salaries are raised by a total of $15,500, what would be the annual breakeven point in (a) units sold and (b) revenues?
Contribution margin per unit = Selling price - Variable cost per unit
$60 - $37 = $23
Total fixed costs + Raised salaries
$180,000 + $15,500 = $195,500
$195,500/$23 = 8,500 Units sold
$60 x 8,500 = $510,000 Revenue
4. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $2.00 per unit sold, what would be the annual breakeven...