Accounting

Problem 6-21 Basic CVP Analysis; Graphing [LO1, LO2, LO4, LO6]

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 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

$150,000

Requirement 1:

Calculate the annual break-even point in dollar sales and in unit sales for Shop 48.(Omit the "$" sign in your response.)

Break-even point in unit sales pairs

Break-even point in sales dollars $

Requirement 2:

Offline: Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000 pairs of shoes sold each year. Indicate the break-even point on your graph.

Requirement 3:

If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or loss? (Negative amount should be indicated by a minus sign. Omit the "$" sign in your response.)

$

Requirement 4:

The company is considering paying the store manager of Shop 48 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 dollar sales and in unit sales? (Round your break-even point in unit sales value to the nearest whole number and consider the same for calculating break-even point in sales dollars. Omit the "$" sign in your response.)...