Walk-About Ltd 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-About is trying to determine the desirability of opening another store, which is expected to have the following revenue and cost relationships:
Per pair
Unit variable data
Selling price.............................£30.00
Cost of shoes...........................£19.50
Sales commissions........................1.50
Total variable costs....................£21.00
Annual fixed costs
Rent....................................£60000
Salaries.................................200000
Advertising.............................80000
Other fixed costs......................20000
Total fixed costs....................£360000
Required
(Consider each question independently.)
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 profit (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 profit if 50 000 units were sold? (This £0.30 is in addition to both the commission paid to the sales staff and the store manager's fixed salary.)