Basic Cvp Analysis

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1. 1. Calculate the annual break-even point in dollar sales and in unit sales for Shop 48. Unit CM= Selling price per unit –Variable expenses per unit = $30 - $18= $12 CM ratio= unit contribution margin/selling price = $12/$30 = 0.4 Unit sales to break even= Fixed Expenses/Unit CM = $150000/$12 = 12,500 pairs of shoes Dollar sales to break even= Fixed expenses/ CM ratio = $150000/0.4 = $375,000 in sales 3. If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or loss? Total Sales = 12000 * $30 = $360,000 in sales Variable Expenses = 12000 * $18 = $216,000 Annual Total Sales --------------------------------------- $360,000 Variable Expenses ------------------------------ $216,000 Contribution Margin ---------------------------- $144,000 Total Fixed Expenses --------------------------- $150,000 Net operating loss ------------------------------- ($ 6,000) 4. The company is considering paying the store manager of Shop 48 an incentive commission of Shop 48 an incentive commission of 75 cents per pair of shoes (in addition to the salesperson's commission). If this change is made, what will be the new break-even point in dollar sales and in unit sales? Now, Variable Expenses = $18.75 Thus, Unit CM= $30 - $18.75 = $ 11.25 CM ratio= unit contribution margin/selling price = 0.375 Unit sales to break even= Fixed Expenses/Unit CM 13,3333 pairs of shoes Dollar sales to break even= Fixed expenses/ CM ratio = $150000/0.375 = $400,000 in sales 5. Refer to the original data. As an alternative to (4) above, the company is considering paying the 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 the shop's net operating income or loss if 15,000 pairs

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