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 Shirt
Selling price $ 40.00

Variable expenses:
Invoice cost $ 18.00
Sales commission 7.00

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.

Required:
1.
Calculate the annual break-even point in dollar sales and in unit sales for Store 36. (Omit the "$" sign in your response.)


Break-even point in unit sales shirts
Break-even point in dollar sales $

3.
If 19,000 shirts are sold in a year, what would be Store 36's net operating income or loss? (Input the amount as a positive value. Omit the "$" sign in your response.)

$

4.
The company is considering paying the store manager of Store 36 an incentive commission of $3 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales? (Omit the "$" sign in your response.)


New break-even point in unit sales shirts
New break-even point in dollar sales $

5.
Refer to the original data. As an alternative to (4) above, the company is considering paying the store manager a $3 commission on each shirt sold in excess of the break-even point. If this change is made, what will be the store’s net operating income or loss if 23,500 shirts are sold in a year? (Input the amount as a positive value. Omit the "$" sign in your response.)

$

6.
Refer to the original data. The company is considering eliminating sales commissions entirely in its stores and increasing fixed salaries by $107,000 annually. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 36? (Omit the "$" sign in your response.)


New break-even point in unit sales shirts
New break-even point in dollar sales $

#1 - What subject is MSU? I've never heard of that.

#2 - You have posted your entire assignment. Surely, you don't think someone here is going to do it all for you, do you?

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To answer the questions, we need to understand the concept of break-even point and how it is calculated.

Break-even point is the level of sales at which total revenue equals total expenses, resulting in zero net profit or loss. It is a crucial measure for businesses to determine the minimum level of sales needed to cover all costs.

1. To calculate the annual break-even point in dollar sales for Store 36:
Break-even point in dollar sales = Total fixed expenses / (Selling price per shirt - Total variable expenses per shirt)
= $300,000 / ($40 - $25) = $300,000 / $15 = 20,000 shirts
Therefore, the break-even point in dollar sales for Store 36 is $800,000 ($40 per shirt x 20,000 shirts).

2. To calculate the break-even point in unit sales for Store 36:
Break-even point in unit sales = Total fixed expenses / (Contribution margin per unit)
The contribution margin per unit is the selling price per shirt minus the total variable expenses per shirt.
Contribution margin per unit = $40 - $25 = $15
Break-even point in unit sales = $300,000 / $15 = 20,000 shirts

3. To calculate Store 36's net operating income or loss when 19,000 shirts are sold in a year:
Net operating income or loss = (Selling price per shirt - Total variable expenses per shirt) x Number of shirts sold - Total fixed expenses
Net operating income or loss = ($40 - $25) x 19,000 - $300,000 = $285,000 - $300,000 = -$15,000
Therefore, Store 36 has a net operating loss of $15,000.

4. To calculate the new break-even point in dollar sales and unit sales if the store manager is paid an incentive commission of $3 per shirt:
The new break-even point in dollar sales will be the same as the original break-even point in dollar sales because it is not affected by the change in commissions. However, the new break-even point in unit sales will change.
The selling price per shirt will remain $40 and the variable expenses per shirt will be $22 ($18 invoice cost + $1 sales commission + $3 store manager incentive commission).
New break-even point in unit sales = Total fixed expenses / (Selling price per shirt - Total variable expenses per shirt)
New break-even point in unit sales = $300,000 / ($40 - $22) = $300,000 / $18 = 16,667 shirts
Therefore, the new break-even point in dollar sales remains $800,000, and the new break-even point in unit sales is 16,667 shirts.

5. To calculate the store’s net operating income or loss if 23,500 shirts are sold in a year with the store manager receiving a $3 commission on each shirt sold in excess of the break-even point:
First, we need to calculate the number of shirts sold in excess of the break-even point. In this case, the break-even point in unit sales is 20,000 shirts.
Shirts sold in excess of the break-even point = Total shirts sold - Break-even point in unit sales
Shirts sold in excess of the break-even point = 23,500 - 20,000 = 3,500 shirts
Net operating income or loss = (Selling price per shirt - Total variable expenses per shirt) x Shirts sold in excess of the break-even point - Total fixed expenses
Net operating income or loss = ($40 - $25) x 3,500 - $300,000 = $52,500 - $300,000 = -$247,500
Therefore, Store 36 has a net operating loss of $247,500.

6. To calculate the new break-even point in dollar sales and unit sales if sales commissions are eliminated in stores and fixed salaries are increased by $107,000 annually:
The fixed salaries will be included in the total fixed expenses, but there will be no sales commissions as variable expenses.
New break-even point in dollar sales = Total fixed expenses / (Selling price per shirt - Total variable expenses per shirt)
New break-even point in dollar sales = ($300,000 + $107,000) / ($40 - $18) = $407,000 / $22 = $18,500 shirts
Therefore, the new break-even point in dollar sales is $740,000 ($40 per shirt x 18,500 shirts), and the new break-even point in unit sales is 18,500 shirts.

By following the formulas and calculations provided above, you can determine the answers to the questions and analyze the financial situation of Store 36.