ACCT20076, Term 3, 2015 Assignment 1
CVP Anaysis – 40 Marks (The marks will be weighted down to 20
marks)
The DC Shoe Company operates a chain of shoe stores that sell
10 different styles of inexpensive men’s
shoes with identical unit costs and selling prices. A unit is
defined as a pair of shoes. Each store has a
store manager who is paid a fixed salary. Individual
salespeople receive a fixed salary and a sales com mission. DC is
considering opening another store that is expected to have the
revenue and cost relationships shown here:
Unit Variable Data (per pair of shoes)
Selling Price
$ 35.00
Annual Fixed Cost
Rent
$
77,000
Salaries
$
262,000
Cost of Shoes
$ 23.20
Advertising
$
86,000
Sales Commission
$
Other fixed costs
$
36,000
Variable Cost Per Unit
$ 25.00
Total fixed costs
$
461,000
1.80
Required: (Consider each question independently)
1. Define cost-volume-profit (CVP) analysis and outline four
assumptions underlying CVP. (5 Marks) What
is the annual breakeven point in (a) units sold and (b)
revenues? (3 Marks)
2. If 60,000 units are sold, what will be the store’s
operating income (loss)? (8 Marks)
3. If sales commissions are discontinued and fixed salaries
are raised by a total of $75,000, what would be
the annual breakeven point in (a) units sold and (b)
revenues? (8 Marks)
4. Refer to the original data. If, in addition to his fixed
salary, the store manager is paid a commission of
$0.35 per unit sold, what would be the annual breakeven point
in (a) units sold and (b) revenues? (8
Marks)
5. Refer to the original data. If, in addition to his fixed
salary, the store manager is paid a commission of
$0.35 per unit in excess of the breakeven point, what would
be the store’s operating income if 60,000 units
were sold? (8 Marks)
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