Question

Sakura is considering making some floral basket arrangements at home and selling them through shops which are entitled to a commission. A supplier quoted her with a long-term contract at $1.20 per stalk of flower. She will use 7 stalks of flowers for each basket of arrangement. She expects that on average 20% of flowers bought will be spoilt or become unsuitable for her arrangements. Other materials will cost about $3.50 per basket arrangement. The shop next to her home has agreed to display and sell her arrangements but she’ll have to pay a monthly charge of $300 plus a 10% commission based on sales price. Sakura plans to sell her arrangement at $40 each. Sakura expects that only 70% of her flower arrangements will be sold and unsold arrangements have zero salvage value.

Required

a) How many arrangements must she make per month to earn a profit of $2,100?

b) How many arrangements must she make per month to breakeven? Round up your answer to the nearest integer unit.

Answer 1

	Cost to Supplier per stalk	$1.20	Given
	No. of stalks per arrangement	7.0	Given
	Average spoilt	20%	Given
	Total required per arrangement	8.4	7 stalks x (1 + 20%)
	Cost to Supplier per arrangement	$10.08	8.40 stalks x $1.20 per stalk
	Other materials cost per arrangement	$3.50	Given
	Total Cost per arrangement	$13.58	$10.08 + $3.50
	Commission per arrangement (10% of Revenue per unit)	$4.00	$40.00 x 10%
	Monthly Charge for Sale	$300.00	Given
	Revenue per arrangement after 30% spoilt arrangement	$28.00	$40 per unit x 70%
	Variable Cost per arrangement	$17.58	$13.58 + $4.00
	Contribution Margin per arrangement	$10.42	$28.00 - $17.58
	Fixed Cost	$300.00	Given
	Expected Profit	$2,100.00	Given
	Total Contribution Received (Expected Profit + Fixed Cost)	$2,400.00	$300 + $2,100
(a)	Number of Units required for making $2,100 per month	230.3263	$2,400 / $10.42
	Rounded off to zero decimals	230
(b)	Number of Units required to breakeven	28.790787	$300 / $10.42
	Rounded off to zero decimals	29