Question

Name:                                                                                                          .

A manager of a local clothing retail store wants to make a sales and promotion plan for next month. In order to evaluate the effectiveness of the plan, the manager identifies all the costs and other relevant information and conducts Break-even analysis. Here are the identified costs and other related information.

Monthly rent fees: $2,500

Wages for the hired employees (Monthly): $6,000

Utility fees (Monthly): $700

Other operation costs (Monthly): $1,000

Purchase price per unit: $78   (The manager purchases clothing from other retailers)

Shipping and handling cost per unit: $12

(Assume there is no other cost)

1. What is the total Fixed cost per month?

Answer           9000                                                                                                                                    :                                                                                                                                           

What is the Variable cost per unit?

Answer                            90                                                                                                                   :                                                                                                                                           

The manager wants to have 20% profit margin on selling price. What is the selling price per unit at the retail store?

Answer :         240                                                                                                           :

How many product units must be sold a month to break even?

Answer                   68                                                                                                                            :                                                                                                                                           

What is the revenue at the break-even point?

Answer                         409.09                                                                                                                      :                                                                                                                                           

The manager wants to have total profit of $5,000 a month. How many product units must be sold to achieve this goal?

Answer                                                                                                                                               :                                                                                                                                           

Now the manager considers two marketing promotion options.

Option 1: Advertising on a local cable channel next month. The advertising cost is $2,000.

How many product units must be sold to cover the Total Cost (including the advertising cost)?

Answer                                                                                                                                               :                                                                                                                                           

Option 2: Sales promotion next month (10% price discount on selling price).

.How many product units must be sold to cover the Total Cost (including sales promotion cost)?

Answer                                                                                                                                                                                                                                             

Answer 1

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Local clothing retail store	Amount $	Note
Workings
Sell price	240.00	A
Less: Variable cost	90.00	B
Contribution per unit	150.00	C
	Amount $
Target profit	5,000.00	D
Add: Total Fixed costs	9,000.00	E
Target contribution	14,000.00	F
Contribution per unit	150.00	See C
Units to be sold	93.33	G=F/C
	Amount $
Target profit	5,000.00	H
Add: Total Fixed costs	9,000.00	See E
Add: Advertising costs	2,000.00	I
Target contribution	16,000.00	J
Contribution per unit	150.00	See C
Units to be sold	106.67	K=J/C
Sell price	240.00	See A
Decrease by 10%	24.00	L=A*10%
Revised Sell price	216.00	M=A-L
Less: Variable cost	90.00	See B
Contribution per unit	126.00	N=M-B
Total Fixed costs	9,000.00	See E
Units to be sold	71.43	O=E/N