Question

The Fashion Shoe Company operates a chain of women's shoe shops around the country. The shops carry many styles of shoes that are all sold at the same price. Sales personnel in the shops are paid a substantial commission on the following pair of shoes sold (in addition to a small basic salary) in order to encourage them to be aggressive in their sales efforts.The following worksheet contains cost and revenue data for Shop 48 and is typical of the company's many outlets.
(a) Calculate the annual break-even point in dollar sales and in unit sales for Shop 48.

Answer 1

The computation of the break-even point (in units) is given below:

Break-eventpoint = Fixed cost / contribution margin.

= Fixed cost / (selling price -  variable cost)

= $158,000/ ($20-%10)

= $158,000/ $10

= %15,800 units.

The break-even point (in units) for Shop 48 is 15,800 units. It can be computed by dividing the amount of fixed cost by the amount of per unit contribution margin. And the per unit contribution margin can be computed by deducting the variable cost per unit from the selling price per unit.

The break-even point is the point at which total costs equal total sales, and there is no loss or profit for a small business.

Learn more about the break-even point at

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