Threads Unlimited operates a chain of shirt stores that carry many styles of shi
ID: 2474173 • Letter: T
Question
Threads Unlimited operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold. Sales personnel also receive a small basic salary.
The following worksheet contains cost and revenue data for Store 45. These data are typical of the company's many outlets:
Per Shirt
Selling price
$
40
Variable expenses:
Invoice cost
$
22
Sales commission
4
Total variable expenses
$
26
Annual
Fixed expenses:
Rent
$
110,000
Advertising
170,000
Salaries
70,000
Total fixed expenses
$
350,000
The company has asked you, as a member of its planning group, to assist in some basic analysis of
its stores and company policies.
Required:
1.
Calculate the annual break-even point in dollar sales and in unit sales for Store 45. (Do not round intermediate calculations.)
3.
If 20,000 shirts are sold in a year, what would be Store 45's net operating income or loss? (Do not round intermediate calculations. Input the amount as a positive value.)
4.
The company is considering paying the store manager of Store 45 an incentive commission of $6 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales? (Do not round intermediate calculations.)
5.
Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager a $6 commission on each shirt sold in excess of the break-even point. If this change is made, what will be the store’s net operating income or loss if 38,500 shirts are sold in a year? (Do not round intermediate calculations. Input the amount as a positive value.)
6.
Refer to the original data. The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $100,000 annually. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 45? (Do not round intermediate calculations.)
Threads Unlimited operates a chain of shirt stores that carry many styles of shirts that are all sold at the same price. To encourage sales personnel to be aggressive in their sales efforts, the company pays a substantial sales commission on each shirt sold. Sales personnel also receive a small basic salary.
The following worksheet contains cost and revenue data for Store 45. These data are typical of the company's many outlets:
Explanation / Answer
Threads Unlimited Details Amt $ Unit Selling Price 45 Variable costs per unit Invoice cost 22 Sales Commission 4 Total Variable cost/unit 26 Unit Contribution Margin 19 Contribution Margin % 42.22% Annual Fixed Expense Rent 110,000 Advertising 170,000 Salaries 70,000 Total Fixed costs 350,000 1.00 Annual BEP Sales Units =Fixed cost/Unit contribution= 18,421 Annual BEP $ Sales =Fixed costs/CM Ratio= 828,947 3.00 When sales units are 20000 Amt $ Total Contribution Margin@$19/unit= 380,000 Less Fixed costs = (350,000) Net Operating Income 30,000 4.00 Details Amt $ Unit Selling Price 45 Variable costs per unit Invoice cost 22 Sales Commission 4 Store Manager's Commission 6 Total Variable cost/unit 32 Unit Contribution Margin 13 Contribution Margin % 28.89% Annual Fixed Expense Rent 110,000 Advertising 170,000 Salaries 70,000 Total Fixed costs 350,000 Annual BEP Sales Units =Fixed cost/Unit contribution= 26,923 Annual BEP $ Sales =Fixed costs/CM Ratio= 1,211,538 5.00 Details Amt $ Unit Selling Price 45 Variable costs per unit Invoice cost 22 Sales Commission 4 Total Variable cost/unit 26 Unit Contribution Margin 19 Contribution Margin % 42.22% Annual Fixed Expense Rent 110,000 Advertising 170,000 Salaries 70,000 Total Fixed costs 350,000 Annual BEP Sales Units =Fixed cost/Unit contribution= 18,421 Annual BEP $ Sales =Fixed costs/CM Ratio= 828,947 When sales =38500 shirts Sales above BEP = 20,079 Contribution Margin Above BEP Unit Selling Price 45 Variable costs per unit Invoice cost 22 Sales Commission 4 Store Manager's Commission 6 Total Variable cost/unit 32 Unit Contribution Margin 13 So Total Contribution margin for 20079 units= 261,026 As the fixed costs are absorbed at BEP level , the net Income will be $261,026 6.00 New BEP Details Details Amt $ Unit Selling Price 45 Variable costs per unit Invoice cost 22 Total Variable cost/unit 22 Unit Contribution Margin 23 Contribution Margin % 51.11% Annual Fixed Expense Rent 110,000 Advertising 170,000 Salaries 170,000 Total Fixed costs 450,000 Annual BEP Sales Units =Fixed cost/Unit contribution= 19,565 Annual BEP $ Sales =Fixed costs/CM Ratio= 880,435
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