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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 alternatives?

05 / 03 / 2018 Assignment

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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

Required:

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?

continued

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 alternatives?

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?


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