Shirts Unlimited - Analysis Graph
Problem
Shirts Unlimited operates a chain of
shirt stores that carry many styles of shirts that are all sold at the same
price. To encourage sales personnel to be aggressive in their sales efforts,
the company pays a substantial sales commission on each shirt sold. Sales
personnel also receive a small basic salary.
The following worksheet contains cost
and revenue data for Store 36. These data are typical of the company’s many
outlets:
|
|
Per shift
|
|
Selling Price
|
$40.00
|
|
Variable expenses
|
|
|
Invoice cost
|
$18.00
|
|
Sales Commission
|
7
|
|
Total Variable expenses
|
$25.00
|
|
|
Annual
|
|
Fixed expenses:
|
|
|
Rent
|
$80,000
|
|
Advertising
|
150,000
|
|
Salaries
|
70,000
|
|
Total fixed expenses
|
$300,000
|
The company has asked you, as a member
of its planning group, to assist in some basic analysis of its stores and
company policies.
1. Calculate the annual break-even
point in dollar sales and in unit sales for Store 36.
2. Prepare a CVP graph showing cost and
revenue data for Store 36 from zero shirts up to 30,000 shirts sold each year.
Clearly indicate the break-even point on the graph.
3. If 19,000 shirts are sold in a year,
what would be Store 36’s net operating income or loss?
4. The company is considering paying
the store manager of Store 36 an incentive commission of $3 per shirt (in
addition to the salespersons’ commissions) If this change is made, what will be
the new break-even point in dollar sales and in unit sales?
5. Refer to the original data. As an
alternative to (4) above the company is considering paying the store manager a
$3 commission on each shirt sold in excess of the break-even point. If this
change is made, what will be the store’s net operating income or loss if 23,500
shirts are sold in a year?
6. Refer to the original data. The
company is considering eliminating sales commissions entirely in its stores and
increasing fixed salaries by $107,000 annually.
a. If this change is made what will be
the new break-even point in dollar sales and in unit sales in Store 36?
b. Would you recommend that the change
be made? Explain why:
TUTORIAL
PREVIEW[Excel Sheet]
1. Calculate the annual break-even
point in dollar sales and in unit sales for Store 36.
Break-even point (in units) = Fixed cost/ Unit Contribution margin
Unit
contribution margin = Selling price - Total variable cost per unit = $40 - $25
= $15
Break-even
point (in units) = 300,000/ 15
= 20,000 shirts
File name: Shirts Unlimited.xls File type: doc PRICE: $20
