Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a first step, she has prepared the following analysis for her new store: Sales price per pair of sandals$2.00 Variable expenses per pair of sandals 1.20 Contribution margin per pair of sandals$0.80 Fixed expenses per year: Building rental$9,000 Equipment depreciation 5,000 Selling 17,600 Administrative 18,000 Total fixed expenses$49,600 4. Angie now has two salespersons working in the store-one full time and one part time. It will cost her an additional $10,000 per year toconvert the part-time position to a full-time position. Angie believes that the change would bring in an additional $32,000 in sales eachyear. Should she convert the position? Use the incremental approach.NoYes5.Refer to the original data. During the first year, the store sold only 68,500 pairs of sandals and reported the following operating results$137,00082 200$ 54,80049,600Sales (68,500 pairs)Variable expensesContribution marginFixed expensesNet operating income$ 5,2001/2o.mheducation.com/hm.tpxChapter 3 Homeworka.What is the store's degree of operating leverage? (Round your answer to 2 decimal places.)Degree of operating leverageb. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 5 %next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept tocompute your answer. Round your percentage answer to 2 decimal places (Le .1234 should be entered as 12.34)%Expected percentage increase in net operating income

As there is additional revenue of $22,000, The Sandal Shop will be profited if the part-time…

Answered: 4. Angie now has two salespersons…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 19P

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Angie Silva has recently opened The Sandal Shop in Brisbane, Australia, a store that specializes in fashionable sandals. Angie has just received a degree in business and she is anxious to apply the principles she has learned to her business. In time, she hopes to open a chain of sandal shops. As a first step, she has prepared the following analysis for her new store:


Sales price per pair of sandals	$	2.00
Variable expenses per pair of sandals		1.20
Contribution margin per pair of sandals	$	0.80
Fixed expenses per year:
Building rental	$	9,000
Equipment depreciation		5,000
Selling		17,600
Administrative		18,000
Total fixed expenses	$	49,600

4. Angie now has two salespersons working in the store-one full time and one part time. It will cost her an additional $10,000 per year to
convert the part-time position to a full-time position. Angie believes that the change would bring in an additional $32,000 in sales each
year. Should she convert the position? Use the incremental approach.
No
Yes
5.Refer to the original data. During the first year, the store sold only 68,500 pairs of sandals and reported the following operating results
$137,000
82 200
$ 54,800
49,600
Sales (68,500 pairs)
Variable expenses
Contribution margin
Fixed expenses
Net operating income
$ 5,200
1/2
o.mheducation.com/hm.tpx
Chapter 3 Homework
a.What is the store's degree of operating leverage? (Round your answer to 2 decimal places.)
Degree of operating leverage
b. Angie is confident that with a more intense sales effort and with a more creative advertising program she can increase sales by 5 %
next year. What would be the expected percentage increase in net operating income? Use the degree of operating leverage concept to
compute your answer. Round your percentage answer to 2 decimal places (Le .1234 should be entered as 12.34)
%
Expected percentage increase in net operating income

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