CVP analysis, shoe stores Refer to requirement 3 of Problem 3- ...

[sdfghj]

CVP analysis, shoe stores
 
  Refer to requirement 3 of Problem 3- 38. In this problem, assume the role of the owner of HighSte

Question 2

Petkus Company paid Perkins Products, a creditor, on account, 7,500 . What are the effects on the fundamental account equation?
 a. Assets increase 7,500; liabilities, no effect; owner's equity increases 7,500.
  b. Assets decrease 7,500; liabilities, no effect; owner's equity decreases 7,500.
  c. Assets increase 7,500; liabilities decrease 7,500; owner's equity, no effect.
  d. Assets decrease 7,500; liabilities decrease 7,500; owner's equity, no effect.
  e. Assets decrease 7,500; liabilities increase 7,500; owner's equity, no effect.

[kilada]

Answer to Question 1

1. For an expected volume of 10,000 pairs, the owner would be inclined to choose the higher-fixed-salaries-only plan because income would be higher by 14,500 compared to the salary-plus-commission plan.

. Operating income for salary plan = 23  10,000  195,500 = 34,500
Operating income under commission pan = 20  10,000  180,000 = 20,000

But it is likely that sales volume itself is determined by the nature of the compensation plan. The salary-plus-commission plan provides a greater motivation to the salespeople, and it may well be that for the same amount of money paid to salespeople, the salary-plus-commission plan generates a higher volume of sales than the fixed-salary plan.

2. Let TQ = Target number of units

For the salary-only plan,
60TQ  37TQ  195,500 = 69,000
23TQ = 264,500
TQ = 264,500  23
TQ = 11,500 units
For the salary-plus-commission plan,
60TQ  40TQ  180,000 = 69,000
20TQ = 249,000
TQ = 249,000  20.00
TQ = 12,450 units

The decision regarding the salary plan depends heavily on predictions of demand. For instance, the salary plan offers the same operating income at 11,500 units as the commission plan offers at 12,450 units.

3. HighStep Shoe Company
Operating Income Statement, 2014

Revenues (9,500 pairs 60) + (1,500 pairs 50) 645,000
Cost of shoes, 11,000 pairs 37 407,000
Commissions = Revenues 5 = 645,000 0.05 32,250
Contribution margin 205,750
Fixed costs 180,000
Operating income  25,750

Answer to Question 2

D

[sdfghj]

Correct answers!

[kilada]

Great! Please up vote