Question

Crabapple Phones has just opened its doors. The new retail store sells refurbished phones at a significant discount from market prices. The phones cost Crabapple $ 55 to purchase and require additional variable costs of $ 45, which includes labor for refurbishing of $ 35 and wages for sales personnel of $ 10. The newly refurbished phones are resold to customers for $ 150. Rent on the retail store costs the company $ 5,000 per month.

Required
1. How many phones does Crabapple have to sell each month to break even?
2. If Crabapple wants to earn $ 4,000 per month after all expenses, how many phones does the company need to sell?
3. Crabapple can purchase already refurbished phones for $ 77.50. This would mean that all labor required to refurbish the phones could be eliminated. What would Crabapple’s new breakeven point be if it decided to purchase the phones already refurbished?
4. Instead of paying the monthly rental fee for the retail space, Crabapple has the option of paying its landlord a 20% commission on sales. Assuming the original facts in the problem, at what sales level would Crabapple be indifferent between paying a fixed amount of monthly rent and paying a 20% commission on sales?
5. What factors would you consider in deciding whether Crabapple should pay the monthly rental fee or the commission on sales?



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  • CreatedJanuary 15, 2015
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