In early January 2022, Ben was talking with her sister and business partner Jinkx regarding the preliminary income statements for DeLaItes Dress Boutique for 2021 (See Exhibit 1). Since January 1, 2021, the business had relocated to a new building, and DeLaItes experienced a loss during 2021 almost double the income of 2020.

Exhibit 1
DeLaItes Dress Boutique
Income Statements for Years Ended Dec. 31
	2019	2020	2021
Sales	8,583,000	8,102,000	10,711,000
Cost of goods sold	4,326,000	4,132,000	5,570,000
Gross margin	4,257,000	3,970,000	5,141,000
Expenses
Selling expense
Salaries	2,021,000	2,081,000	3,215,000
Commissions	429,000	405,000	536,000
Advertising	254,000	250,000	257,000
Administrative expenses	418,000	425,000	435,000
Rent	420,000	420,000	840,000
Depreciation	84,000	84,000	142,000
Miscellaneous expenses	53,000	93,000	122,000
Total expenses	3,679,000	3,758,000	5,547,000
Net income	$578,000	$212,000	-$406,000

On January 1^st, 2021, the business moved into a new, larger location with an expanded selection of products. Their product offerings changed, which resulted in their gross margin percentage declining. As 2021 ended, Jinkx and Ben could see something was wrong.

Their accountant suggested the new location had changed the economics of their business, and an increase in advertising might help. In addition, altering pricing formulas would keep their prices in line with new competitors opening in Bellevue and Renton. Ben was also considering getting rid of sales commissions, which along with cost of goods sold were the firm’s only variable costs. Grandma always claimed commissions (which amounted to 5% of sales) were core to the success of DeLaItes, but Ben had her doubts.

Exhibit 2
DeLaItes Dress Boutique
Operating Statistics
	2019	2020	2021
Retail space (sq. ft)	10,340	10,340	15,390
Sales per sq. ft	$830	$784	$696
# of sales transactions	5,352	5,321	6,893
Average sales transaction	$1,604	$1,523	$1,554

Suppose Ben decides to get rid of commissions:

a. With this adjustment, what would the 2021 breakeven point be (in sales transactions, and in sales dollars)?

b. What are the major factor(s) you would consider in deciding whether to get rid of commissions? Limit your response to four sentences or less.

Answer rating: 100% (QA)

a Breakeven point in sales transactions Breakeven point in sales dollars Explanation 1 i It is given ... View the full answer