Question

Please refer to your textbook and class discussions. 1. The Shopping Bag is a thrift store that sells used clothing. Assume that variable costs associated with selling each item on average is $0.50. Average selling price of each item is $2.50. The store has the following expenses incurred on a monthly basis: Labor/payroll: $900 Telephone/Internet: $50 Office supplies: $25 Other supplies: $25 Assume that there are no taxes; Show all your calculations for all questions for receiving credit: a) How many clothing items should the store sell per month to breakeven? a) How much revenue per month should it make to breakeven? Quantity multiplied by selling price b) How much revenue per month should it make to create a profit of $2000?

Answer 1

You have asked multiple questions in the same post. To make the matter worst, your questions have multiple sub parts. As if they were not enough, two of your questions are graded and they carry points. I have therefore addressed only the sub parts of the first question (those are not graded).

Sale Price, P = 2.50; VC = C = 0.50; Fixed cost, FC = 900 + 50 + 25 + 25 = 1,000

(a) Break even quantity = FC / (P - C) = 1,000 / (2.50 - 0.50) = 500 clothing items

(b) Revenue per month to break even = rean even quantity x P = 1,000 x 2.50 = $ 2,500

(c) Let N be the units sold for a profit of 2,000

Hence, (P - C) x N - FC = 2,000

Hence, (2.50 - 0.5) x N - 1,000 = 2,000

Hence, N = 3,000 / 2 = 1,500

Hence revenue per month to generate a profit of 2,000 = N x P = 1,500 x 2.50 = $ 3,750