Hanks Western Wear is a western hat retailer in Lubbock, TX. Though Hanks carries various styles of western hats, every hat has approximately the similar price and invoice (purchase) cost, as shown in the following table. Sales personnel receive large commissions to encourage them to be more aggressive in their sales efforts. Presently, the Lubbock economy is really humming, and sales growth at Hank's has been great. The business is very competitive, thus, and Hank has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western wear stores. Due to of the rapid growth in sales, Hank is also finding the management of certain aspects of the business, like restocking of inventory and hiring and training new salespeople, more difficult.
Sales Price $45.00
Per unit variable expenses
Purchase cost 25.50
Sales Commissions 4.50
Total per unit variable costs $30.00
Total annual fixed expenses
Advertising $22000
Rent 18000
Salaries 185000
Total fixed expenses $225000
Needed:-
1. Measure the annual breakeven point in unit sales and dollar sales
2. If Hank sells 20,000 hats, what is its before-tax income or loss?
3. If Hank's sells 30,000 hats, what is its margin of safety and margin of safety ratio?