Question

Required information Problem 5-26 CVP Applications; Break-Even Analysis; Graphing (L05-1, LO5-2, L05-4, LO5-5] [The following information applies to the questions displayed below.] The Fashion Shoe Company operates a chain of women's shoe shops that carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a sales commission on each pair of shoes sold plus a small base salary. The following data pertains to Shop 48 and is typical of the company's many outlets Per Pair of Shoes $ 30.00 Selling price Variable expenses: Invoice cost Sales commission Total variable expenses $ 8.00 7.00 $ 15.00 Annual Fixed expenses: Advertising Rent Salaries Total fixed expenses $ 35,000 30,000 145,000 $210,000 Problem 5-26 Part 5 5. Refer to the original data. As an alternative to (4) above, the company is considering paying the Shop 48 store manager 50 cents commission on each pair of shoes sold in excess of the break-even point. If this change is made, what will be Shop 48's net operating income (loss) if 17,400 pairs of shoes are sold? (Do not round intermediate calculations.) Net operating income

Answer 1

Contribution per unit = $30 - $15 = $15
Break even Point (Units) = Fixed Expenses/Contribution per unit
= 210000/$15
= 14,000 units
Contribution	(17,400*15)	261,000
Less: Fixed Expenses		210,000
Less: Manager Commission	(17,400-14,000)*$ 0.5	1,700
Net Operating income		49,300