Refer to requirement 3 of Problem 3-43. In this problem, assume the role of the owner of LadyStyle.

Data From Problem 3-43

The LadyStyle sells women’s shoes across the country through its chain of shoe stores. It sells 20 different styles of shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager and a store supervisor who are paid a fixed salary. Shoes are sold by the sales team who receive a fixed salary and a sales commission. LadyStyle is considering opening another store that is expected to have the revenue and cost relationships shown here.

Required

1. As owner, which sales compensation plan would you choose if forecasted annual sales of the new store were at least 25,000 units? What do you think of the motivational aspect of your chosen compensation plan?
2. Suppose the target operating income is $99,000. How many units must be sold to reach the target operating  income under 

(a) The original salary-plus-commissions plan and 

(b) The higher-fixed-salaries-only  plan? Which method would you prefer? Explain briefly.
3. You open the new store on January 1, 2020, with the original salary-plus-commission compensation  plan in place. Because you expect the cost of the shoes to rise due to inflation, you place a firm bulk order for 25,000 shoes and lock in the $29 price per unit. But toward the end of the year, only 20,000 shoes are sold, and you authorize a markdown of the remaining inventory to $35 per unit. Finally, all units are sold. The salespeople get paid a commission of 5% of revenues. What is the annual operating income for the store?

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Home Insert Page Layout A Formulas B Unit Variable Data (per pair of shoes) $40.00 $29.00 2.00 $31.00 1 2 Selling price 3 Cost of shoes 4 Sales commission 5 6 Variable cost per unit Data C Review View D Annual Fixed Costs Rent Salaries Advertising Depreciation Other fixed costs Total fixed costs E $ 25,000 96,000 35,000 6,000 9,000 $171,000