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Question 3.3.6 Rodriguez Art Studio Ltd. Giselle Rodriguez owns Rodriguez Art Studio Ltd. in Havana, Cuba. It has overhead costs of $3000 per month. The
Question 3.3.6 Rodriguez Art Studio Ltd. Giselle Rodriguez owns Rodriguez Art Studio Ltd. in Havana, Cuba. It has overhead costs of $3000 per month. The variable cost and price are $5 and $20 respectively, per person per lesson. There are typically 500 customers each month although the firm's maximum capacity is 600 clients. (a) Calculate the break-even quantity for Rodriguez Art Studio Ltd. [2 marks] (b) Calculate the margin of safety for the business. [2 marks] (c) Construct a fully labelled break-even chart for Rodriguez Art Studio Ltd. [5 marks] Suppose in the subsequent time period that rent increases, thus raising the firm's overheads to $4000 per month. Also, Giselle Rodriguez reduces her price to $17 which raises demand to 520 clients per month. (d) Calculate the new break-even quantity and comment on your findings. [3 marks] (e) Illustrate the new break-even level of output on your original chart. [3 marks] (f) Explain whether the change in price was a sensible decision. [4 marks]
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