Question
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
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
- 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.
- Using your information from the Contribution Income Statement, compute the Leahy Greeting Card Companys monthly break-even point in sales $ and in unit sales.
- 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:
- Contribution margin
- Total operating profit
- Break-even units and sales dollars
- 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:
- Contribution margin
- Operating profit
- Break-even units and sales
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