Question

Tom's Sports Wear is a retailer of sports hats located in Atlanta, Georgia. Although Tom's carries numerous styles of sports hats, each hat has approximately the same price and invoice purchase cost, as shown below. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Currently the economy of Atlanta is really humming, and sales growth at Tom's has been great. However, the business is very competitive, and Tom has relied on its knowledgeable and courteous staff to attract and retain customers, who otherwise might go to other sports wear stores. Also, because of the rapid growth in sales, Tom is finding it more difficult to manage certain aspects of the business, such as restocking of inventory and hiring and training new salespeople.
Sales price $ 31.00
Per-unit variable costs:
Invoice cost 17.05
Sales commissions 4.05
Total per-unit variable costs $ 21.10
Total annual fixed costs:
Advertising $ 23,100
Rent 28,200
Salaries 124,200
Total fixed costs $ 175,500

The annual breakeven point in unit sales is calculated to be:

Answer 1

The annual breakeven point is $550157

Given that the Sales price is $ 31.00, Per-unit variable costs: Invoice cost is 17.05, Sales commissions is 4.05, Total per-unit variable costs is $ 21.10, Total annual fixed costs: Advertising is $ 23,100, Rent is 28,200, Salaries is 124,200 and Total fixed costs is $ 175,500.

The break-even point is your total fixed cost divided by the difference between the unit price and the variable cost per unit.

The sales price is $31 and the total variable cost is $21.10.

Now, we will find the Contribution margin by subtracting the Total variable cost from the sales price, we get

Contribution margin= Sales price-Total sales price

Contribution margin=31-21.10

Contribution margin=9.9

Further, we will find the contribution margin ratio by dividing the contribution margin by Sales price, we get

contribution margin ratio=contribution margin/Sales price

contribution margin ratio=9.9/31

contribution margin ratio=0.319

contribution margin ratio=31.9%

Furthermore, we will find the break-even point, we get

Break-even point=Fixed cost/contribution margin

Break-even point=175500/9.9

Break-even point=17727.27

Now, we will find the break-even sales in dollars, we get

Break-even sales=Fixed cost/contribution margin ratio

Break-even sales=(175500/31.9)×100

Break-even sales=550157

Hence, the annual breakeven point in unit sales is calculated to be $550157.

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