Reference no: EM132420056

Nielsen's Fine Clothing Store

You are the owner of a general retail clothing store. Below is the income statement for last year which is not expected to change at all during the upcoming fiscal year. You have one full time manager, two three quarter time assistant managers and 3 part time clerks. You have had the manager and assistant managers for the past five years. Five years ago sales were only 350,000 dollars. As sales have increased you have added the part time clerks. You anticipate adding more clerks as sales increase in the future. You pay you credit card vendor 1 percent of sales. Bad debt expense and shrinkage are also estimated as a percentage of sales. The Mall common area payment must be paid regardless of how many sales you make. In addition, your ex-husband must get paid alimony and child support each month (which you pay from the owner's salary).

1. Please calculate the pretax breakeven point from the formula in the online lecture on breakeven analysis.

2. What happens to your breakeven point if your primary supplier of clothing raises prices 5%? You buy 45% of your clothing from this company.

3. Your manager has received an offer of employment from a competitor. She would make 25% more than you are paying her now. If you match this offer, what is the impact upon your breakeven point (what will the new breakeven point be)?

Please show the calculations with your answers.

Data for analysis.

First step: Determine which expense items are fixed and which are variable. Please identify which are fixed and which are variable. I do not expect you to make the same assumptions I would make. You are graded on the application of the breakeven formula to the data as you have analyzed it. 

Second Step: Calculate the breakeven sales using the formula in the online lecture.

Third Step: Changing the inputs (in problem 2 and 3) and recalculating the breakeven sales.

Revenues                                        $650,000

Expenses:                           

Managers's Salaries & Benefits         25,000

Asst. Managers' Wages                      35,000

Clerical Wages                                    29,000

Owner's Salary                                   55,000

Rent (4% of gross revenue)                13,000

Mall Common Area Payment            25,000

Phone Bill                                             5,000

Property Insurance                               7,000

Property Taxes                                     5,000

Office Supplies                                    2,000

Postage                                                    500

Equipment Expenses                            5,000

Shrinkage                                              4,000

Bad Debt Expense                               15,000

Credit Card Expense                             6.500

Wholesale Clothing Purchases          380,000

                                                        ---------------

Total Expenses                                   612,000

Net Operating Income                          38,000