1. You own a flower shop and you need to estimate demand for your services.

A) Assume the following:

Number of households in the market: 600,000

Average number of arrangements purchased per

household per year 4

Companys estimate share of the total market 5%

SOLVE FOR THE FOLLOWING:

Total annual market demand

600,000x4= $2,400,000

Estimated annual company demand

120,000

Estimated monthly company demand

10,000

Estimated weekly demand

2308

B) Given the following for your flower shop: (refer to slides # 14 and 15)

Annual Expenses:

Salaries: $ 35,000 Hourly labor: $10.00

Flowers: $7.00 Gas: $2,000

Rent: $14,800 Advertising: $1,800

Insurance: $3,000 Utilities: $ 2,400

Supplies: $ 3.00

Total Fixed Costs: $59,000 Total Var. Costs: $2,400,000

Fixed Costs per unit: 0.49 Variable Cost per unit: $20

BREAKEVEN ANALYSIS

(refer to slides # 14 17)

3. Using the information in Ques. #1 A & B above:

A) Compute the breakeven point for the following:

1. Total annual revenue of $5,400,000

2. Total annual revenue of $6,000,000

3. Total annual revenue of $4,800,000

B) compute the BE for each of the 3 selling prices given in # 3 A above if the

company has a profit goal of $50,000. This is a fixed profit goal so it

impacts your fixed costs because it is not tied to # of units sold.

(Use fixed costs from # 3A above)

C) compute the BE for each of the 3 selling prices given in # 3 A above if the

company has a profit goal of 10% of sales. This is fluctuating or variable

profit goal that is tied to the # of units sold so it impacts your Variable

Costs per unit which then changes your Cont. Margin. You will add 10% of

each of the 3 selling prices to your VC/unit.

(Use original Fixed Costs in # 3A above)

(Refer to slide # 28)

D) What price are you going to charge for your product? What factors will

influence your decision ?