Reference no: EM133081522
Question - FastRun Sdn Bhd operates a chain of shoes stores that sell ten different styles of casual men's shoes with identical unit costs and selling price. A unit is defined as a pair of shoes. Each outlet has 5 store manager who are paid fixed monthly salary and salesmen, who each receive a fixed monthly salary and sales commission. FastRun is considering opening a new outlet that is expected to have the following revenues and costs:
RM
Selling Price 130.00
Variable cost of shoes (40% direct material, 20% direct labour and 40% manufacturing overhead) 50.00
Salesmen commission 20.00
Annual Fixed Costs and Non-Current Assets RM
Rent 60,000
Salaries 200,000
Advertising 80,000
Other fixed costs 20,000
Equipment (depreciation rate is 10% per annum) 60,000
The company expects to produce and sell 7,500 units in the first year of the new outlet's operation.
Required - Consider each of the followings independently:
1. Determine the annual break-even point (units and value) and margin of safety (units). Provide an interpretation of the results.
2. Based on the sales units' estimate, calculate the annual net profit of the company.
3. If commission payments to the salesmen are discontinued and the annual fixed salaries are raised to RM220,000, can the company break-even at 4,500 units per year?
4. Determine how many units must be sold to achieve the target profit of RM250,000 for next year given that the total variable manufacturing overhead per unit is expected to increase by 10 percent.
5. Refer to original data. If, in addition to their fixed salary, the store managers are paid commission of RM25.00 per unit is excess of the break-even point, what would be the store's profit if 9,000 units were sold in the coming year?