Bus630 Week 2 Assingment

BASIC CVP ANALYSIS

Calculate the annual break-even point in dollar sales and in unit sales for Shop 48.

Unit sales to break even = Fixed expenses / Unit CM

$150,000 / 12 = 12500

Dollar Sales to break even = Fixed expenses / CM ratio

$150,000 / 0.40 = $375,000

If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or loss? The company is considering paying the store manager of Shop 48 an incentive commission 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?

1. Net operating income or loss for 12,000 pairs of shoes:

Sales $360,000

Variable Expenses ($216,000)

Contribution Margin $144,000

Fixed Expenses ($150,000)

Net Operating Loss ($6000)

2. Break even point in dollar sales for 12,000 pairs:

Fixed expenses / CM ratio = $150,000 / 0.40 = $375,000

3. Break even point in unit sales for 12,000 pairs:

Fixed expenses / unit CM = $150,000 / $12 = 12,500

Refer to the original data. As an alternative to (4) above, the company is considering paying the 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 the shop's net operating income or loss if 15,000 pairs of shoes are sold?

Net operating income or loss for 15,000 pairs of shoes:

Sales $450,000

Variable Expenses ($277,000)

Contribution Margin $172,500

Fixed Expenses ($150,000)

Net Operating Profit ($22,500)

Refer to the original data. The company is considering eliminating sales commissions entirely in its shops and increasing fixed salaries by $31,500 annually. If this change is made, what will be the new break-even point in dollar sales and in unit sales for Shop 48? Would you recommend that the change be...