Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. In time, she hopes to open a chain of sandal shops. As a first step, she has gathered the following data for her new store: Sales price per pair of sandals 32.00
Variable expenses per pair of sandals 18.00
Contribution margin per pair of sandals 14.00
Fixed expenses per year:
Building rental 6,400
Equipment depreciation 8,000
Selling 4,800
Administrative 12,800
Total fixed expenses 32,000
Required:
Fixed expenses 32,000
CM per unit $ 14.00
Break-even sales (units) 2,286
Break-even sales (dollars) 73,143
Sales 115,200
Break-even sales (dollars) 73,143
Margin of safety (dollars) 42,057
Margin of safety (%) 36.5%
Fixed expenses 32,000
Target profit 24,000
CM per unit $ 14.00
Break-even sales (units) 4,000
Angie now has two salespersons working in the store—one full time and one part time. It will cost her an additional $8,000 per year to convert the part-time position to a full-time position. Angie believes that the change would increase annual sales by $48,000. Should she convert the position