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The Fashion Shoe Company operates a chain of women's shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on the following pair of shoes sold (in addition to a small basic salary) in order to encourage them to be aggressive in their sales efforts.The following worksheet contains cost and revenue data for Shop 48 and is typical of the company's many outlets.
(d) The company is considering paying the store manager of Shop 48 an incentive commission of 75 cents per pair of shoes (in addition to the salesperson's commission). If this change is made, what will be the new break-even point in dollar sales and in unit sales?

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abhaydwive123

The computation of the revised break-even point (in units) is given below:

Break-eventpoint = Fixed cost / contribution margin.

= Fixed cost / (selling price - revised variable cost.

= $158,000/ ($20-%10.70)

= $158,000/ $9.3

= %16,989.

Compute the amount of revised variable cost per unit:

revised variable cost = variable cost + incentive commission

= $10 + $0.70

=  $10.70.

The revised break-even point (in units) for Shop 48 is 16,989 units. It can be computed by dividing the amount of fixed cost by the per unit contribution margin. And the per unit contribution margin can be computed by deducting the revised variable cost per unit from the selling price per unit.

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