# Question

The Walk Rite Shoe Company operates a chain of shoe stores. The stores sell ten different styles of inexpensive men’s shoes with identical unit costs 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 sales commission. Walk Rite is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:

Selling price ......... $ 30.00

Unit variable cost per pair:

Cost of shoes ........ $ 19.50

Sales commissions ..... 1.50

Total variable costs ..... $ 21.00

Annual fixed costs:

Rent ........... $ 60,000

Salaries ......... 200,000

Advertising ......... 80,000

Other fixed costs ...... 20,000

Total fixed costs ...... $360,000

REQUIRED

1. What is the annual breakeven point in (a) units sold and (b) revenues?

2. If 35,000 units are sold, what will be the store’s operating income (loss)?

3. If sales commissions were discontinued for individual salespeople in favour of an $81,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold and (b) revenues?

4. Refer to the original data. If the store manager were paid $0.30 per unit sold in addition to his current fixed salary, what would be the annual breakeven point in (a) units sold and (b) revenues?

5. Refer to the original data. If the store manager were paid $0.30 per unit commission on each unit sold in excess of the breakeven point, what would be the store’s operating income if 50,000 units were sold?

Individual salespeople receive a fixed salary and a sales commission. Walk Rite is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:

Selling price ......... $ 30.00

Unit variable cost per pair:

Cost of shoes ........ $ 19.50

Sales commissions ..... 1.50

Total variable costs ..... $ 21.00

Annual fixed costs:

Rent ........... $ 60,000

Salaries ......... 200,000

Advertising ......... 80,000

Other fixed costs ...... 20,000

Total fixed costs ...... $360,000

REQUIRED

1. What is the annual breakeven point in (a) units sold and (b) revenues?

2. If 35,000 units are sold, what will be the store’s operating income (loss)?

3. If sales commissions were discontinued for individual salespeople in favour of an $81,000 increase in fixed salaries, what would be the annual breakeven point in (a) units sold and (b) revenues?

4. Refer to the original data. If the store manager were paid $0.30 per unit sold in addition to his current fixed salary, what would be the annual breakeven point in (a) units sold and (b) revenues?

5. Refer to the original data. If the store manager were paid $0.30 per unit commission on each unit sold in excess of the breakeven point, what would be the store’s operating income if 50,000 units were sold?

## Answer to relevant Questions

Refer to requirement 3 of 3-40. In this problem assume the role of the owner of Walk Rite. In requirement 3 of 3-34 If sales commissions were discontinued for individual salespeople in favour of an $81,000 increase in fixed ...Panther Productions is negotiating the next sequel to its Illinois Jones series. This negotiation is proving more difficult than for the original movie. There is a risk that the series may have peaked and the total box ...The Windsor Chamber of Commerce is planning its annual event. There are two possible plans: a. Hold the event at a local hotel. The fixed rental cost would be $2,700 and the charge for meals would be $110 per person. b. Hold ...A number of terms are listed below: Source document Actual Cost tracing Cost allocation rate Proration Opportunity cost Cost pool REQUIRED Select the terms from the above list to complete the following sentences. 1. ...Mike Rotundo, the president of Tax Assist, is examining alternative ways to compute indirect cost rates. He collects the following information from the budget for 2013: ◆ Budgeted variable indirect costs: $12 per hour of ...Post your question

0