The Tread Shoe Company operates a chain of shoe stores. The stores sell 10 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. Tread Wear is trying to determine the desirability of opening another store which is expected to have the following revenue and cost relationships.

Note that if sales commissions were discontinued for individual salespeople, there would be an $ 87,000 increase in fixed salaries.

 

Revenue and Cost information Selling price $ 37.00 Unit variable cost per pair: Cost of shoes Sales commissions 22.00 1.85 69 $ 23.85 Total variable costs Annual fixed costs: Rent $ 64,000 Salaries 206,000 Advertising 80,000 Other fixed costs 23,000 69 $ 373,000 Total fixed costs