Stylish Shoe Company Accounting Help With Solution

The Stylish Shoe Company operates a chain of shoe stores that sell ten different styles of ladies’ shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes. Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary and a sales commission. Stylish is considering opening another store that is expected to have the revenue and cost relationship shown here.

Unit variable data (per pair of shoes)		Annual fixed costs
Selling price	$300.00	Rent	$ 150,000
Cost of shoes	$185.00	Salaries	500,000
Sales commission	15.00	Advertising	200,000
Variable cost per unit	$200.00	Other fixed costs	50,000
		Total fixed costs	$900,000

Required

Consider each question independently.

a.Calculate the annual breakeven point in (i) units sold and (ii) revenues.

b.If 8,000 units are sold, determine the store’s operating income/loss.

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c.If sales commissions are discontinued and fixed costs are raised by a total of $77,500, calculate the annual breakeven point in (i) units sold and (ii) revenues.

d.Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $10.00 per unit sold, calculate the annual breakeven point in (i) units sold and (ii) revenues?

e.Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $10.00 per unit in excess of the breakeven point, calculate the store’s operating income if 12,000 units were sold.

f.As the owner, which sales compensation plan would you choose if the forecasted annual sales of the new store were at least 10,000 units? What do you think about the motivational aspect of your
chosen compensation plan?

g.Suppose the target operating income is $34,500. How many units must be sold to reach the target operating income under

(i) the original salary-plus-commissions plan and

(ii) the higher-fixed-salaries-only plan? Which method would you prefer? Explain briefly.

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