Question

You own a store that sells bumper stickers. You sell each bumper sticker for $2.50 and typically people purchase an average of 5 bumper stickers per visit. You purchase the bumper stickers from your supplier at a cost of $0.25 each. Your store is open 7 days a week for 10 hours each day.

You negotiated a great lease rate for the area and are only paying $2,500 per month plus another $500 for utilities, insurance and everything else needed to run the store. The store basically runs itself so you are never there. But you do have one employee always at the store. You pay whoever is working $13/hr but your total cost after payroll taxes and benefits is actually $15/hr.

You are a cashless store so you only take credit cards. You pay 3% of the total sale including sales tax to the bank (called merchant processing fees) each time you make a sale. You have to collect sales tax on each purchase which is 0.088040 for your city.

To motivate your employees - you created a bonus pool so that if they sell over $350 on average a day over the course of any calendar month, you pay out 10% of the total sales as a bonus to the employees based on the percentage time they worked during the month. You calculate the average based on 4.333 weeks per month.

How many bumper stickers do you need to sell each month to break even?

Answer 1

Let the number of stickers to be sold be 5x. So the average number of purchases = x

Total Revenue = 2.5 * 5x = 12.5x

Total Sales Tax Collected = 0.088040x

Total Expenses:
Bumper Sticker Rate = 0.25 * 5x = 1.25x

Cost of Running the store = 2500 + 500 = 3000

Employee Cost = $15 / hr

Hours per month = Weeks * Days/ Week * Hours Per day = 4.333 * 7 * 10 = 303.31

Total Employee Cost = 15 * 303.31 = 4549.65

Sales Tax = 0.03 * 12.5x = 0.375x

To calculate Breakeven without Bonus:
12.5x + 0.088040x = 1.25x + 3000 + 4549.65 + 0.375x

10.96304x = 7549.65

or x = 688.65

5x = 3443.25

Sales Per day = 3443.25 / (4.333 * 7) = 113.52

Amount of Sales Per day = 113.52 * $2.5 = $283.80

Since the breakeven average is less than $350 per day, so the question of bonus does not arise.

Thus the breakeven point is when the store sales 3443.25 bumper stickers per month.

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