1) Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals:

1. paying a fixed rent of $15,000 a month, or

2. paying a base rent of $9,000 plus 10% of revenue received, or

3. paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of

$25,000.

Required:

For each option (1, 2, and 3), compute the breakeven sales for that option and the monthly rent paid at break-even. (12 Points)

Show the sales levels at which each option is preferable. For example, if option 1 is

preferable (meaning yields the highest operating income) at for unit sales from 1 to 20 units, you would state: "Option I is preferable from 1-20 units. (8 Points)