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Browns’ Company sells ten different styles of relatively inexpensive
football jerseys with identical purchase costs and selling prices. Brown
is trying to determine the desirability of opening another store, which
would have the following expense and revenue relationships (variable
data on a per unit basis, fixed expenses in total):
Variable data: Selling Price $40.00; Cost of Shirt $18.00; Sales Commissions $7.00
Annual fixed expenses: Rent$80,000; Salaries $150,000; Other fixed expenses $70,000
1. What is the annual breakeven point in dollar sales and units?
2. If Brown has an effective tax rate of 40%, how many jerseys must they sell to make $80,000 after taxes?
3. Ignoring income taxes, If 21,000 jerseys are sold, what would be the stores operating income (loss)?
4. Refer to the original data. If Brown decided to do away with sales
commissions and increase salespersons salaries by $140,000 per year,
what would be the point of indifference, in units, between the two
5. Brown has been approached by the Bear Advertising Agency to do
their advertising. If Brown signs a contract for $150,000 for Bear to
handle their account, how many additional units will have to be sold to
cover the cost?