Calculation Of Breakeven Point In Dollars And Units

Question

Hanks Western Wear is a western hat retailer in Lubbock, TX.  Although Hanks carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table.  Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts.  Currently, the Lubbock economy is really humming, and sales growth at Hank’s has been great.  The business is very competitive, however, and Hank has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores.  Because of the rapid growth in sales, Hank is also finding the management of certain aspects of the business, such as restocking of inventory and hiring and training new salespeople, more difficult.

Sales Price                                     $45.00
Per unit variable expenses
Purchase cost                                   25.50
Sales Commissions                             4.50
Total per unit variable costs             $30.00

Total annual fixed expenses
   Advertising                                      $22000
   Rent                                                 18000
   Salaries                                          185000
Total fixed expenses                         $225000

Required
1.    Calculate the annual breakeven point in unit sales and dollar sales
2.    If Hank sells 20,000 hats, what is its before-tax income or loss?
3.    If Hank’s sells 30,000 hats, what is its margin of safety and margin of safety ratio?
4.    Hank is considering the elimination of sales commissions completely and increasing salaries by $106,500 annually.  What would be the new breakeven point in units?  What would be the before-tax income or loss if 20,000 hats are sold with the new salary plan?
5.    Identify and discuss the strategic and ethical issues in the decision to eliminate sales commissions (see requirement 4)  How do these strategic concerns affect Hank’s decision?

Summary

The question belongs to Finance and it discusses about a scenario of a hat business in Texas. Various questions about this scenario such as the calculation of breakeven point in unit sales and dollar sales, the income tax for selling certain number of hats annually, the impact of breakeven point if commission on sales is replaced with increase in salaries, etc have been answered in the solution in detail with required calculations.

Total Word Count 292

Download Full Solution

Comments

  • HWA
    Rasha

    this is a very good website

  • HWA
    maani

    I have 50 questions for the same test your page is showing only 28

  • HWA
    joeanne

    hi can you please help or guide me to answer my assignments. thanks

  • HWA
    joeanne

    hi can anyone help or guide me to my assignments. thanks

  • HWA
    Monik


  • HWA
    Cristina

    This solution is perfect ...thanks

  • HWA
    Janete

    Hello Allison,I love the 2nd image that you did! I also, had never heard of SumoPaint, is something that I will have to exolpre a bit! I understand completely the 52 (or so) youtube videos that you probably watched. Sometimes they have what you want, sometimes they don't! However, it is always satisfying when you are able to produce something that you have taught yourself. Great job!Debra 0 likes

  • HWA
    Sandeep

    Perfect bank of solution. 

  • HWA
    Oxana

    great !

  • HWA
    Paul Brandon-Fritzius

    thanks for the quick response. the solution looks good. :)

  • HWA
    tina Johnson

    thnx for the answer. it was perfect. just the way i wanted it. 

  • HWA
    Giuseppe

    works fine.