hw 3.5 ngie Silva has recently opened The Sandal Shop in Brisbane, Australia, a
ID: 2430635 • Letter: H
Question
hw 3.5
ngie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a first step, she has prepared the following analysis for her new store:
breakeven point in unit sales= ? pairs
breakeven point in dollar sales= ?
3. Angie has decided that she must earn at least $3,920 the first year to justify her time and effort. How many pairs of sandals must be sold to reach this target profit?
unit sales to attain target profit= ? pairs
4. Angie now has two salespersons working in the store—one full time and one part time. It will cost her an additional $9,000 per year to convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $40,000 in sales each year. Should she convert the position? Use the incremental approach.
no or yes?
5.Refer to the original data. During the first year, the store sold only 72,500 pairs of sandals and reported the following operating results:
Sales price per pair of sandals $ 2.80 Variable expenses per pair of sandals 0.84 Contribution margin per pair of sandals $ 1.96 Fixed expenses per year: Building rental $ 12,000 Equipment depreciation 5,000 Selling 53,000 Administrative 28,000 Total fixed expenses $ 98,000 1. How many pairs of sandals must be sold each year to break even? What does this represent in total dollar sales?
breakeven point in unit sales= ? pairs
breakeven point in dollar sales= ?
3. Angie has decided that she must earn at least $3,920 the first year to justify her time and effort. How many pairs of sandals must be sold to reach this target profit?
unit sales to attain target profit= ? pairs
4. Angie now has two salespersons working in the store—one full time and one part time. It will cost her an additional $9,000 per year to convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $40,000 in sales each year. Should she convert the position? Use the incremental approach.
no or yes?
5.Refer to the original data. During the first year, the store sold only 72,500 pairs of sandals and reported the following operating results:
Sales (72,500 pairs) $ 203,000 Variable expenses 60,900 Contribution margin $ 142,100 Fixed expenses 98,000 Net operating income $ 44,100
a. what is the store's degree of operating leverage? degree of operating leverage=? b. b. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 4% next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept to compute your answer. Round your percentage answer to 2 decimal places (i.e .1234 should be entered as 12.34). expected percentage increase in net operating income= ? %
Explanation / Answer
Answer 1.
Selling Price per unit = $2.80
Variable Cost per unit = $0.84
Contribution Margin per unit = $1.96
Fixed Expenses = $98,000
Contribution Margin Ratio = Contribution Margin per unit / Selling Price per unit
Contribution Margin Ratio = $1.96 / $2.80
Contribution Margin Ratio = 70%
Breakeven Point in unit sales = Fixed Expenses / Contribution Margin per unit
Breakeven Point in unit sales = $98,000 / $1.96
Breakeven Point in unit sales = 50,000
Breakeven Point in dollar sales = Fixed Expenses / Contribution Margin Ratio
Breakeven Point in dollar sales = $98,000 / 0.70
Breakeven Point in dollar sales = $140,000
Answer 3.
Target Profit = $3,920
Required Unit Sales = (Fixed Expenses + Target Profit) / Contribution Margin per unit
Required Unit Sales = ($98,000 + $3,920) / $1.96
Required Unit Sales = 52,000
Answer 4.
Increase in Fixed Expenses = $9,000
Increase in Sales = $40,000
Increase in Net Operating Income = Increase in Sales * Contribution Margin Ratio - Increase in Fixed Expenses
Increase in Net Operating Income = $40,000 * 0.70 - $9,000
Increase in Net Operating Income = $19,000
Yes, she should convert the position.
Answer 5.
Degree of Operating Leverage = Contribution Margin / Net Operating Income
Degree of Operating Leverage = $142,100 / $44,100
Degree of Operating Leverage = 3.22
Degree of Operating Leverage = % Increase in Net Operating Income / % Change in Sales
3.22 = % Increase in Net Operating Income / 4%
% Increase in Net Operating Income = 12.88%
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.