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Hank S Western Wear Is A Western Hat Retailer in Lubbock

Hank's Western Wear is a western hat retailer in Lubbock, Texas that is experiencing rapid sales growth. Each hat has a sales price of $45 and variable costs of $30 per unit. Total annual fixed costs are $225,000. The business is competitive and Hank relies on knowledgeable staff. Due to growth, managing inventory and hiring is challenging.

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Amit Pandey
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52 views1 page

Hank S Western Wear Is A Western Hat Retailer in Lubbock

Hank's Western Wear is a western hat retailer in Lubbock, Texas that is experiencing rapid sales growth. Each hat has a sales price of $45 and variable costs of $30 per unit. Total annual fixed costs are $225,000. The business is competitive and Hank relies on knowledgeable staff. Due to growth, managing inventory and hiring is challenging.

Uploaded by

Amit Pandey
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Solved: Hank s Western Wear is a western hat retailer in

Lubbock

Hank's Western Wear is a western hat retailer in Lubbock, Texas. Although Hank'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 large commissions to
encourage them to be more aggressive in their sales efforts. Currently, the Lubbock economy is
really humming, and sales growth at Hank's has been great. The business is very competitive,
however, and Hank has relied on his knowledgeable and courteous staff to attract and retain
customers who otherwise might go to other western wear stores. Because of the rapid growth in
sales, Hank is also finding the management of certain aspects of the business, such as
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 ............ $ 22,000
Rent ............... 18,000
Salaries ............... 185,000
Total fixed expenses ........ $225,000
Required
1. Calculate the annual breakeven point in unit sales and dollar sales.
2. If Hank’s 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?
4. Hank is considering the elimination of sales commissions completely and increasing salaries
by $106,500 annually. What would be the new breakeven point in units? What would be the
before-tax income or loss if 20,000 hats are sold with the new salary plan?
5. Identify and discuss the strategic and ethical issues in the decision to eliminate sales
commissions (see requirement 4). How do these strategic concerns affect Hank’s decision?

ANSWER
https://solvedquest.com/hank-s-western-wear-is-a-western-hat-retailer-in-lubbock/

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