The Warren Shoe Company operates a chain of shoe stores that sell 10 different styles of inexpensive men’s 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. Warren is considering opening another store that is expected to have the revenue and cost relationships shown here.

UNIT VARIABLE DATA (per pair of shoes)

Selling price $60

Cost of shoes $37

Sales commission $3

Variable cost per unit $40

ANNUAL FIXED COSTS

Rent $30,000

Salaries $100,000

Advertising $40,000

Other fixed costs $10,000

TOTAL FIXED COSTS $180,000

1. What is the annual breakeven point in (a) units sold and (b) revenues?

2. If 8,000 units are sold, what will be the store’s operating income (loss)?

3. If sales commissions are discontinued and fixed salaries are raised by a total of $15,500, what would be the annual breakeven point in (a) units sold and (b) revenues?

4. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $2.00 per unit sold, what would be the annual breakeven point in (a) units sold and (b) revenues?

5. Refer to the original data. If, in addition to his fixed salary, the store manager is paid a commission of $2.00 per unit in excess of the breakeven point, what would be the store’s operating income at sales of 12,000 units?