Mark Leahy is considering opening a greeting card shop. Mr. Leahy estimates that the rental cost of the store will be $550 per month. Other relevant costs include:

Greeting cards $0.50 per card sold

Telephone services $95 per month

Electricity $200 per month

Miscellaneous fixed costs $150 per month

Miscellaneous variable cost $0.10 per card sold

Mr. Leahy intends to pay salaries to himself and one part-time store clerk of $1,200 per month, regardless of the number of cards sold.

At present, he estimates an average greeting card selling price of $2 per card.

Required

a. Assuming Mr. Leahy opens the store in October 20x1 and, that month, he sells 3,000 greeting cards, prepare a contribution income statement for the first month of operations.

b. Using your information from the Contribution Income Statement, compute the Leahy Greeting Card Companys monthly break-even point in sales $ and in unit sales.

c. If the greeting card stores unit sales increase by 10%, by how much will operating profit increase? Also, at the new sales level, i.e. with the 10% increase, compute the stores monthly:

i. Contribution margin

ii. Total operating profit

iii. Break-even units and sales dollars

d. Ignoring part c above, suppose the greeting card company pays $150 for advertising with the expectation of increasing unit sales by 15%, at this new sales level, compute the stores new monthly:

i. Contribution margin

ii. Operating profit

iii. Break-even units and sales