The Boylston Shoe company operates a chain of shoe stores that sells 10 different styles

of inexpensive mens shoes with identical unit cost and selling prices. A unit is defined
as a pair of shoes. Each store has a store manager who is paid a fix salary. Individual
sales people receives a fixed salary and sales commission. Boylston is considering
opening another store that is expected to have the revenue and costs relationships shown
here:
- Selling Price: $30,00
- Cost of shoes: $19,50
- Sales commission $1,50
- Annual Fixed costs: $360.000,00
1. What is the annual breakeven point in (a) units sold and (b)
revenues?
2. If 35.000 units are sold, What will be the stores operating
income?
3. If sales commissions are discontinued and fixed salaries are
raised by a total of $81.000,00. 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 $0,30 per unit sold,
What would be the annual breakeven point at (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 $0,30 per unit in excess
of the breakeven point, What would be the stores operating
income if 50.000 units were sold?
Refer to the requirement of previous exercise. In this problem asumme the role of the
owner of Boylston.
1. Calculate the number of units sold at which the owner of
Boylston would be indifferent between the original salary-pluscommissions plan for sales people and the higher fixed salaries
only plan.
2. As owner, Which sales compensation plan would you choose if
forecasted annual sales of the new store were at least 55.000
units? What do you think of the motivational aspect of your
chosen compensation plan?
3. Suppose the target operating income is $168.000,00 How many
units must be sold to reach the target operating income under
(a) the original salary-plus-commissions plan and (b) the higher
fixed salaries only plan?
4. You open the new store on January 1, 2008. With the original
salary plus commission compensation plan in place. Because
you expect the cost of the shoes to rise due to inflation, you
place a firm bulk order for 50.000 shoes and locked in the
$19,50 price per unit. But, towards the end of the year, only
48.000 shoes are sold and you authorise a mark-down of the
remaining inventory to $18,00 per unit. Finally all units are sold.

Sales people, as usual, get paid a commission of 5% of

revenues. What is the annual operating income for the store?