Question
This is management accounting question Fresh Flowers iS new business ready to open a store in the Westfield shopping centre nearby. Westfield has a number
This is management accounting question
Fresh Flowers iS new business ready to open a store in the Westfield shopping centre nearby. Westfield has a number of florist shops already, so Zoe is anxious about the demand for her flower arrangements. Westfield has two options available for rental contracts: a) A standard fixed rent agreement Of $15,000 per month; or b) A commission contract based on 20% of sales revenue with $7,000 per month minimum rent Zoe estimates that a bouquet will sell for $110 and have a variable cost of $59 to make and a 10% sales commission for the Shop attendant. Required: 1. What is the break-even point in units under each rental agreement? [5 marks] 2. Zoe is uncertain if she will sell 200, 400, 600, 800 or 1000 arrangements per month. Prepare a table that shows the expected profit at each sales level under each rental agreement For what range of sales levels will Zoe prefer: (a) the fixed rent agreement or (b) the royalty agreement? [10 marks] 3. If Zoe signs a sales agreement with a local street vendor rather than Westfield, it will save her both rental contract options and sales commission. However, she could only sell the flower arrangements for $70 to the vendor. Explain how would this affect your answer in requirements 2? [5 marks)
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