Suppose you and your brother Noah, a veterinary medicine major, want to open a pet store. After long deliberations and lively discussion about the name of the corporation, you agree to name it Noah’s Bark. You arrange to obtain retail space, to purchase supplies and pets, and to advertise in the newspaper. Now you are almost ready to open for business. But first you want to analyze how your plans will affect profit.

You and Noah plan to sell Labrador retrievers for $350 each, and you estimate that total fixed costs for Noah’s Bark will be $6,375 ($2,000 rent, $4,000 salaries, and $375 advertising). The cost to you of purchasing the Labrador retriever puppies is $120 each.

On average, you spend $60 to feed each puppy before it is sold and $30 per puppy on miscellaneous items such as dipping and grooming supplies.

Required: (1) How many dogs must Noah’s Bark sell to break even?

(2) How much pretax income will Noah’s Bark earn if it sells 750 dogs?

(3) How many dogs must Noah’s Bark sell to earn $14,000 pretax income?

(4) What must dollar sales be to break even?

(5) What must dollar sales be to earn $14,065 pretax income?

Suppose you and your brother believe that if the selling price does not change, Noah’s Bark will be able to sell 200 Labrador retrievers next year. At that unit’sales volume, profit is expected to be $21,625 ([$140 contribution margin per dog X 200 dogs] —

$6,375 total fixed cost). However, you are considering three alternative plans (only one of which will be followed) that you believe may allow Noah’s Bark to earn even more than $21,625. These plans are as follows:

(a) Raise the selling price of the dogs to $450 per dog. With this alternative, variable costs per dog and total fixed costs do not change.

(b) Purchase only those Labrador retrievers that are descendants of American Kennel Club (AKC) ribbon winners, thus increasing the variable cost to $240 (these dogs can be purchased for $150 each). You are considering this alternative because you think the perceived improvement in the purity of the breed will increase the sales volume of dogs. With this change, neither the selling price per dog nor the total fixed cost changes.

(c) Increase total fixed costs by spending $1,000 more on advertising. With this alternative, the selling price per dog and the variable costs per dog do not change.
Required: (6) Basing your decision on C-V-P results alone, which plan should you choose? Why?
(7) What other factors might you want to consider in making this choice?  Lo1