Bubba's Western Cover is a western hat retailer in El Paso, Texas. Although Bubba's carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the El Paso economy is really humming, and sales growth at Bubba's has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western hat stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. Sales price Per unit variable expenses Purchase cost $ 80.00 34.50 Sales commissions 20.50 Total per unit variable costs Total annual fixed expenses Advertising Rent $ 55.00 $187,500 193,800 306, 250 Salaries Total fixed expenses $686,750 Required: 1. Calculate the annual breakeven point, both in terms of units and in terms of sales dollars. 2. If Bubba's sells 28,000 hats, what is its before-tax income or loss? Support your answer by preparing a contribution income statement. 3. If Bubba's sells 41,000 hats, what is its margin of safety (MOS) and MOS ratio?
Bubba's Western Cover is a western hat retailer in El Paso, Texas. Although Bubba's carries numerous styles of western hats, each hat has approximately the same price and invoice (purchase) cost, as shown in the following table. Sales personnel receive a commission to encourage them to be more aggressive in their sales efforts. Currently, the El Paso economy is really humming, and sales growth at Bubba's has been great. The business is very competitive, however, and Bubba, the owner, has relied on his knowledgeable and courteous staff to attract and retain customers who otherwise might go to other western hat stores. Because of the rapid growth in sales, Bubba is also finding the management of certain aspects of the business more difficult, such as restocking inventory and hiring and training new salespeople. Sales price Per unit variable expenses Purchase cost $ 80.00 34.50 Sales commissions 20.50 Total per unit variable costs Total annual fixed expenses Advertising Rent $ 55.00 $187,500 193,800 306, 250 Salaries Total fixed expenses $686,750 Required: 1. Calculate the annual breakeven point, both in terms of units and in terms of sales dollars. 2. If Bubba's sells 28,000 hats, what is its before-tax income or loss? Support your answer by preparing a contribution income statement. 3. If Bubba's sells 41,000 hats, what is its margin of safety (MOS) and MOS ratio?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter14: The Balanced Scorecard And Corporate Social Responsibility
Section: Chapter Questions
Problem 1E: Henrys Cafe is a local restaurant that is growing quickly. While the company does not yet have a...
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