The WalkRite Shoe Company operates a chain of shoe stores thatsell ten different styles...

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Accounting

The WalkRite Shoe Company operates a chain of shoe stores thatsell ten different styles of inexpensive shoes with identical unitcosts 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 salescommission. WalkRite is considering opening another store that isexpected to have the revenue and cost relationships shown here:
UNIT VARIABLE COSTS (per pair of shoes) Selling price $30.00
Cost of shoes 19.50
Sales commission 1.50
Variable Cost Per Unit $21.00
ANNUAL FIXED COSTS
Rent $ 60,000
Salaries 200,000
Advertising 80,000
Other fixed costs 20,000
Total Fixed Costs $360,000
(CONSIDER EACH QUESTION INDEPENDENTLY)
1. What is the annual breakeven point in units sold andrevenues?
2. If 35,000 units are sold, what will be the store’s operatingincome (loss)?
3. If sales commissions are discontinued and fixed salaries areraised by a total of $81,000, what would be the annual breakevenpoint in units sold and revenues?
4. Refer to the original data. If, in addition to his fixedsalary, the store manager is paid a commission of $0.30 per unitsold, what would be the annual breakeven point in units sold andrevenues?
5. Refer to the original data. If, in addition to his fixedsalary, the store manager is paid a commission of $0.30 per unit inexcess of the breakeven point, what would be the store’s operatingincome if 50,000 units were sold?
6. Refer to the original data. Calculate the number of unitssold which the owner of WalkRite would be indifferent between theoriginal salary plus commissions plan for salespeople and thehigher fixed salaries only plan.
7. As owner, which sales compensation plan would you choose ifforecasted annual sales of the new store were at least 55,000units? What do you think of the motivational aspect of your chosencompensation plan?
8. Suppose the target operating income is $168,000. How manyunits must be sold to reach the target operating income under (a)the original salary plus commissions plan and (b) the higher fixedsalaries only plan?
9. You open the new store on January 1, with the salary pluscommission compensation plan in place. Because you expect the costof the shoes to rise due to inflation, you place a firm bulk orderfor 50,000 shoes and lock in the $19.50 price per unit. But, towardthe end of the year, only 48,000 shoes are sold, and you authorizea markdown of the remaining inventory to $18.00 per unit. Finally,all units are sold. Salespeople, as usual, get paid a commission of5% of revenues. What is the annual operating income for thestore?

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3.6 Ratings (512 Votes)

1-	annual break even point in units	fixed cost/contribution margin per unit	360000/(30-21)	40000
	annual break even point in revenue	fixed cost/ contribution/sales	360000/(9/30)	1200000

2-	sales	35000*30	1050000
	less variable cost	35000*21	735000
	contribution		315000
	less fixed cost		360000
	operating profit/loss		-45000

3-	annual break even point in units	fixed cost/contribution margin per unit	441000/19.5	22615.38
	annual break even point in revenue	fixed cost/ contribution/sales	441000/(10.5/30)	1260000

	New fixed cost	360000+81000	441000
	new variable cost per unit	21-1.5	19.5
	contribution margin per unit	30-19.5	10.5

4-	annual break even point in units	fixed cost/contribution margin per unit	441000/10.2	43235.29
	annual break even point in revenue	fixed cost/ contribution/sales	441000/(10.2/30)	1297059

	New fixed cost	360000+81000	441000
	new variable cost per unit	19.5+.3	19.8
	contribution margin per unit	30-19.8	10.2

5-	sales	50000*30	1500000
	less variable cost	50000*21	1050000
	gross contribution margin		450000
	less commission above break even point(50000-40000)*.3		3000
	contribution margin		447000
	less fixed cost		360000
	operating profit		87000

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In: AccountingThe WalkRite Shoe Company operates a chain of shoe stores thatsell ten different styles of...The WalkRite Shoe Company operates a chain of shoe stores thatsell ten different styles of inexpensive shoes with identical unitcosts 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 salescommission. WalkRite is considering opening another store that isexpected to have the revenue and cost relationships shown here:UNIT VARIABLE COSTS (per pair of shoes) Selling price $30.00Cost of shoes 19.50Sales commission 1.50Variable Cost Per Unit $21.00ANNUAL FIXED COSTSRent $ 60,000Salaries 200,000Advertising 80,000Other fixed costs 20,000Total Fixed Costs $360,000(CONSIDER EACH QUESTION INDEPENDENTLY)1. What is the annual breakeven point in units sold andrevenues?2. If 35,000 units are sold, what will be the store’s operatingincome (loss)?3. If sales commissions are discontinued and fixed salaries areraised by a total of $81,000, what would be the annual breakevenpoint in units sold and revenues?4. Refer to the original data. If, in addition to his fixedsalary, the store manager is paid a commission of $0.30 per unitsold, what would be the annual breakeven point in units sold andrevenues?5. Refer to the original data. If, in addition to his fixedsalary, the store manager is paid a commission of $0.30 per unit inexcess of the breakeven point, what would be the store’s operatingincome if 50,000 units were sold?6. Refer to the original data. Calculate the number of unitssold which the owner of WalkRite would be indifferent between theoriginal salary plus commissions plan for salespeople and thehigher fixed salaries only plan.7. As owner, which sales compensation plan would you choose ifforecasted annual sales of the new store were at least 55,000units? What do you think of the motivational aspect of your chosencompensation plan?8. Suppose the target operating income is $168,000. How manyunits must be sold to reach the target operating income under (a)the original salary plus commissions plan and (b) the higher fixedsalaries only plan?9. You open the new store on January 1, with the salary pluscommission compensation plan in place. Because you expect the costof the shoes to rise due to inflation, you place a firm bulk orderfor 50,000 shoes and lock in the $19.50 price per unit. But, towardthe end of the year, only 48,000 shoes are sold, and you authorizea markdown of the remaining inventory to $18.00 per unit. Finally,all units are sold. Salespeople, as usual, get paid a commission of5% of revenues. What is the annual operating income for thestore?