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PROBLEM 1 The owner of the Red Mill Inn reviews gift shop sales on a monthly basis. Over the years, certain items have been dropped
| PROBLEM 1 | |||||||
| The owner of the Red Mill Inn reviews gift shop sales on a monthly basis. Over the years, | |||||||
| certain items have been dropped from the shop because their sales provided insufficient | |||||||
| profit relative to the other gift shop items. Information for the past six months on three gift | |||||||
| shop items is in the table below. | |||||||
| BAG OF | SWEET | STICKY | |||||
| MUFFINS | BREAD | BUNS | |||||
| Sales | $2,160.00 | $540.00 | $2,880.00 | ||||
| Variable costs | $1,170.00 | $256.50 | $1,260.00 | ||||
| Contribution Margin | $990.00 | $283.50 | $1,620.00 | ||||
| Fixed costs | $480.00 | $350.00 | $600.00 | ||||
| Net Income | $510.00 | ($66.50) | $1,020.00 | ||||
| 25% of the fixed costs of each item are avoidable; the other 75% are not. Show calculations | |||||||
| to determine if Sweet Bread is profitable or not. | |||||||
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