Running Head: HOW TO DETRMINE THE VALUES OF A SALE?

Calculate the annual break-even point in dollar sales and in unit sales for Shop 48. Break-even point is calculated by finding the profit of 0. Profit is found by Unit CM Q Fixed Expense (Noreen, 2010). By plugging in each we will solve for 0 to find the quantity at the break-even point. 0= (30-18) Q 150,000 12Q= 150,000 Q= 150,000/12 Q= 12,500 pairs which is the break-even point

Prepare a CVP graph showing cost and revenue data for Shop 48 from zero shoes up to 17,000 pairs of shoes sold each year. Clearly indicate the break-even point on the graph.

CVP SHOE Sales CHART

$500,000 $450,000 $400,000 $350,000 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $0 0 5000 10000 15000 Number of Shoes Sold

Total Sales

Sales Fixed Expenses Total Expense

Running Head: SALE VALUES

If 12,000 pairs of shoes are sold in a year, what would be Shop 48's net operating income or loss? To determine this we must use the profit equation. Profit= (30-18) 12,000- 150,000 Profit= -6.000 If 12,000 pairs of shoes are sold there would be a $6,000 loss.

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? First the new variable expense must be calculated. We must add 75 cents to the previous $18.00 variable expense. Then the break-even point should be recalculated. 0= (30-18.75) Q 150,000 150,000/11.25= Q 0= 11.25Q- 150,000 Q= 13,333 pairs of shoes

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 of shoes are sold?

Running Head: SALE VALUES This can be explained by calculating the profit. Profit=(30-18.50) 15,000-150,000 The profit will be $22,500 if 15,000 pairs are sold. Profit= 22,500

Refer to the original data. The company is considering eliminating sales commissions entirely in its shops and increasing fixed salaries by $31,500 annually. If this change is made, what will be the new break-even point in dollar sales and in unit sales for Shop 48? Would you recommend that the change be made? Explain. The variable cost would now equal 13.50 and the variable cost would rise to 181,500. Now calculate the break-even cost. 0= (30-13.50) Q- 181,5000 181,500= 16.50Q Q=11,000 pairs of shoes. I would advise that the store not pursue an annual income because the competition will cease. The benefit of making money based on the ability to sell will only increase sales. The greatest motivation is self-motivation. The break-even point might be lower but there is a great chance of the break-even point being met before a store with out commission based pay.

Running Head: SALE VALUES

Reference: Noreen, E. (Apr-10). Managerial Accounting for Managers, 2nd Edition. New York, NY: McGraw-Hill