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

of inexpensive men´s 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 store´s 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 store´s 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‐plus‐commissions 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?