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 $ 50.00

Variable expenses:
Invoice cost $ 23.00
Sales commission 9.00

Total variable expenses $ 32.00

Annual
Fixed expenses:
Rent $ 176,400
Advertising 93,200
Salaries 83,200

Total fixed expenses $ 352,800


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. (Do not round intermediate calculations. Omit the "$" sign in your response.)


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

3.

If 18,300 shirts are sold in a year, what would be Store 36's net operating income or loss? (Input the amount as a positive value. Do not round intermediate calculations. Omit the "$" sign in your response.)

$

4.

The company is considering paying the store manager of Store 36 an incentive commission of $0.80 per shirt (in addition to the salespersons' commissions). If this change is made, what will be the new break-even point in dollar sales and in unit sales? (Do not round intermediate calculations. Round your final answers to 2 decimal places. Omit the "$" 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 $0.80 commission on each shirt sold in excess of the break-even point. If this change is made, what will be the store’s net operating income or loss if 23,020 shirts are sold in a year? (Input the amount as a positive value. Do not round intermediate calculations. Omit the "$" 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 $135,900 annually. If this change is made, what will be the new break-even point in dollar sales and in unit sales in Store 36? (Do not round intermediate calculations. Omit the "$" sign in your response.)


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

To calculate the answers to the questions, we will use the cost and revenue data provided for Store 36. Let's begin:

1. To calculate the annual break-even point in dollar sales and in unit sales for Store 36, we need to determine the number of units to be sold and the dollar amount of sales needed to cover all the fixed and variable expenses.

Break-even point in unit sales:
The break-even point in unit sales is the total fixed expenses divided by the contribution margin per unit.
Contribution margin per unit = Selling price per unit - Variable expenses per unit

Contribution margin per unit = $50.00 - $32.00 = $18.00
Break-even point in unit sales = Total fixed expenses / Contribution margin per unit

Break-even point in unit sales = $352,800 / $18.00

Finished calculation: $352,800 / 18 = 19,600 shirts

Break-even point in dollar sales:
Break-even point in dollar sales = Break-even point in unit sales * Selling price per unit

Break-even point in dollar sales = 19,600 shirts * $50.00

Finished calculation: $980,000.00

Therefore, the annual break-even point for Store 36 is 19,600 shirts in unit sales and $980,000.00 in dollar sales.

3. To determine Store 36's net operating income or loss if 18,300 shirts are sold in a year, we will calculate the difference between the total revenue and the total expenses (fixed and variable).

Net operating income or loss = (Selling price per unit * Number of units sold) - Total fixed expenses - (Variable expenses per unit * Number of units sold)

Net operating income or loss = ($50.00 * 18,300) - $352,800 - ($32.00 * 18,300)

Finished calculation: $915,000.00 - $352,800 - $585,600.00 = -$23,400.00

Therefore, Store 36's net operating income or loss is -$23,400.00.

4. To calculate the new break-even point in dollar sales and unit sales if the store manager's incentive commission is added, we will consider the additional commission as a variable expense per unit.

New break-even point in unit sales:
Contribution margin per unit = Selling price per unit - Variable expenses per unit (including the manager's incentive commission)

Contribution margin per unit = $50.00 - ($23.00 + $9.00 + $0.80) = $17.20

New break-even point in unit sales = Total fixed expenses / Contribution margin per unit

New break-even point in unit sales = $352,800 / $17.20

Finished calculation: $20,465.12 = 20,465 shirts (rounded to the nearest whole unit)

New break-even point in dollar sales:
New break-even point in dollar sales = New break-even point in unit sales * Selling price per unit

New break-even point in dollar sales = 20,465 shirts * $50.00

Finished calculation: $1,023,250.00

Therefore, the new break-even point for Store 36 (with the additional manager's incentive commission) is 20,465 shirts in unit sales and $1,023,250.00 in dollar sales.

5. To calculate Store 36's net operating income or loss if the store manager's commission is based on shirts sold in excess of the break-even point, we need to calculate the excess units sold and the additional commission earned.

Excess units sold = Number of units sold - Break-even point in unit sales

Excess units sold = 23,020 shirts - 19,600 shirts

Finished calculation: 3,420 shirts

Additional commission earned = Excess units sold * Manager's incentive commission

Additional commission earned = 3,420 shirts * $0.80

Finished calculation: $2,736.00

Net operating income or loss = (Selling price per unit * Number of units sold) - Total fixed expenses - (Variable expenses per unit * Number of units sold) + Additional commission earned

Net operating income or loss = ($50.00 * 23,020) - $352,800 - ($32.00 * 23,020) + $2,736.00

Finished calculation: $1,151,000.00 - $352,800 - $737,440.00 + $2,736.00 = $63,496.00

Therefore, Store 36's net operating income is $63,496.00.

6. To determine the new break-even point in dollar sales and unit sales if sales commissions are eliminated and fixed salaries are increased, we need to calculate the contribution margin per unit with the updated expenses.

Updated contribution margin per unit = Selling price per unit - Variable expenses per unit (excluding sales commission)

Updated contribution margin per unit = $50.00 - ($23.00 + $0.80) = $26.20

New break-even point in unit sales = Total fixed expenses / Updated contribution margin per unit

New break-even point in unit sales = $352,800 / $26.20

Finished calculation: $13,474.81 = 13,475 shirts (rounded to the nearest whole unit)

New break-even point in dollar sales = New break-even point in unit sales * Selling price per unit

New break-even point in dollar sales = 13,475 shirts * $50.00

Finished calculation: $673,750.00

Therefore, the new break-even point for Store 36 (with no sales commissions and increased fixed salaries) is 13,475 shirts in unit sales and $673,750.00 in dollar sales.