# Cost Accounting: 3-41 SuperShades operates a kiosk at the local mall

Cost Accounting

3-41 CVP, alternative cost structures

SuperShades operates a kiosk at the local mall, selling sunglasses for $20 each. SuperShades currently pays $800 a month to rent the space and pays two full-time employees to each work 160 hours a month at $10 per hour. The store shares a manager with a neighboring mall and pays 50% of the manager’s annual salary of $40,000 and benefits equal to 20% of salary. The wholesale cost of the sunglasses to the company is $5 a pair.

Required:

1. How many sunglasses does SuperShades need to sell each month to break even?

2. If SuperShades wants to earn an operating income of $4,500 per month, how many sunglasses does the store need to sell?

3. If the store’s hourly employees agreed to a 15% sales-commission-only pay structure, instead of their hourly pay, how many sunglasses would SuperShades need to sell to earn an operating income of $4,500?

4. Assume SuperShades pays its employees hourly under the original pay structure, but is able to pay the mall 8% of its monthly revenue instead of monthly rent. At what sales levels would SuperShades prefer to pay a fixed amount of monthly rent, and at what sales levels would it prefer to pay 8% of its monthly revenue as rent?

3-41 CVP, alternative cost structures

SuperShades operates a kiosk at the local mall, selling sunglasses for $20 each. SuperShades currently pays $800 a month to rent the space and pays two full-time employees to each work 160 hours a month at $10 per hour. The store shares a manager with a neighboring mall and pays 50% of the manager’s annual salary of $40,000 and benefits equal to 20% of salary. The wholesale cost of the sunglasses to the company is $5 a pair.

Required:

1. How many sunglasses does SuperShades need to sell each month to break even?

2. If SuperShades wants to earn an operating income of $4,500 per month, how many sunglasses does the store need to sell?

3. If the store’s hourly employees agreed to a 15% sales-commission-only pay structure, instead of their hourly pay, how many sunglasses would SuperShades need to sell to earn an operating income of $4,500?

4. Assume SuperShades pays its employees hourly under the original pay structure, but is able to pay the mall 8% of its monthly revenue instead of monthly rent. At what sales levels would SuperShades prefer to pay a fixed amount of monthly rent, and at what sales levels would it prefer to pay 8% of its monthly revenue as rent?

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