Question

5. Slippers Inc. produces and sells shoes in chain stores. Company sells 10 kinds of cheap shoes with similar costs and selling prices. Each store has a manager working for a salary. Each salesperson is paid salary plus a sales Premium. Company pays extra 2 TL premium to sales person and 2 TL to manager for each pair of shoes sold beyond BEP. Company is to decide whether to open up or not a new store. Budgeted revenue and costs are given below. Per pair (TL) 80,00 32,00 8.00 40,00 Unit variable data Price Unit manufacturing cost Sales commissions Unit variable costs Annual fixed costs Rent Salaries Advertisement Other fixed costs Total fixed costs 160.000 480.000 288.000 32.000 960.000 Required: (evaluate each item separately) 20 points a) Compute operating profit (loss) assuming 30,000 pairs of shoes are sold. b) Compute target sales in units and TL to make 240,000 TL operating loss. c) Compute target sales in units and TL to earn 180,000 TL operating profit. d) Assume Company pays extra 2 TL premium to sales person for each pair sold over 30.000 pairs. Compute operating profit if 40,000 pairs of shoes are sold. Wish you

Answer 1

a) 30,000 pairs:

Particulars	Calculation	$
Selling Price	30,000 * 80	2,400,000
Less: Variable Costs	30,000 * 40	1,200,000
Contribution Margin	2,400,000-1,200,000	1,200,000
Less: Fixed Costs	Given	960,000
Operating Profit	1,200,000-960,000	240,000

b) Target Sales = (Fixed Costs - Target Operating Loss) / Contribution per unit

= (960,000 - 240,000) / (80 - 40)

= 720,000 / 40

= 18,000 units

c) Target Sales = (Fixed Costs + Target Operating Profit) / Contribution per unit

= (960,000 + 180,000) / (80 - 40)

= 1,140,000 / 40

= 28,500 units

d) 40,000 pairs:

Particulars	Calculation	$
Selling Price	40,000 * 80	3,200,000
Less: Variable Costs	40,000 * 40	1,600,000
Contribution Margin	3,200,000-1,600,000	1,600,000
Less: Fixed Costs	Given	960,000
Profit	1,600,000-960,000	640,000
Less: Premium paid	(40,000-30,000) * 2	20,000
Operating Profit	640,000-20,000	620,000