Basic Cvp

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 worksheet 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 |

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

| Total | | Per Unit |

Sales (12,500 Shoes) | $375,000.00 | | $30.00 |

Variable Expense | $225,000.00 | | $18.00 |

Contribution Margin | $150,000.00 | | $12.00 |

Fixed Expense | $150,000.00 | | |

Net Operating (Loss or Gain) | 0.00 | | |

* 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. Clearly indicate the break-even point on the graph.

* If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or loss?

Sales (12,000 Shoes) | $360,000.00 | | $30.00 |

Variable Expense | $216,000.00 | | $18.00 |

Contribution Margin | $144,000.00 | | $12.00 |

Fixed Expense | $150,000.00 | | |

Net Operating (Loss or Gain) | (6,000.00) | | |

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...