James Bodreau owns a strip mall in a suburb of Denver. Of the twelve store spaces in the mall, seven are rented by boutique owners and five are vacant. James has decided that of¬

fering more services to stores in the mall would enable him to increase occupancy. He has decided to use one of the vacant spaces to provide, at cost, a gift-wrapping service to shops in the mall. The boutiques are enthusiastic about the new service. Most of them are staffed minimally, which means that every time they have to wrap a gift, phones go unanswered and other customers in line grow impatient. James figured that the gift-wrapping service would incur the following costs: The store space would normally rent for $1,500 per month;

part-time gift wrappers could be hired for $1,000'per month; and wrapping paper and rib¬

bon would average $0.50 per gift. The boutique owners estimated the following number of gifts to be wrapped per month.

After the service had been in effect for six months, James calculated the following actual av¬ erage monthly number of gifts wrapped for each of the stores.

Required:
1. Calculate a single charging rate, on a per-gift basis, to be charged to the shops. Based on the shops' actual number of gifts wrapped, how much would be charged to each shop using the single charging rate?
2. Based on the shops' actual number of gifts wrapped, how much would be charged to each shop using the dual charging rate?
3. Which shops would prefer the single charging rate? Why? Which would prefer the dual charging rate and why?
4. Several of the shop owners were angry about their bill for the gift-wrapping service.
They pointed out that they were to be charged only for the cost of the service. How could you make a case for them?

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Candles, Etc. Store Dream Weaver Gift Shoppe Back-in-the-Saddle Westernwear Cuppa Java Gourmet Coffees Shoe You Dana's Sportswear Penelope's Secret Number of Gifts Wrapped Per Month 200 300 100 70 50 130 150