EXERCISE 6-17 (30 MINUTES)

11,000 pairs × $30.00 per pair = $330,000 in sales.

Although the change will lower the break-even point from 12,500 pairs

to 11,000 pairs, the company must consider whether this reduction in

the break-even point is more than offset by the possible loss in sales

arising from having the sales staff on a salaried basis. Under a salary ar-

rangement, the sales staff has less incentive to sell than under the pre-

sent commission arrangement, resulting in a potential loss of sales and

a reduction of profits. Although it is generally desirable to lower the

break-even point, management must consider the other effects of a

change in the cost structure. The break-even point could be reduced

dramatically by doubling the selling price but it does not necessarily fol-

low that this would improve the company’s profit.

Problem 6-19 (60 minutes)