# Jerry Stone owns and operates a small beach shop in a mall on Sanibel Island, Florida. For the last six months, Jerry has had a display of sunglasses in the front window. Largely because of the display, Jerry has sold 100 pairs of sunglasses per month at an average cost of \$26 and selling price of \$50. The sales volume

Chapter 21, Practice Exercises #29

Jerry Stone owns and operates a small beach shop in a mall on Sanibel Island, Florida. For the last six months, Jerry has had a display of sunglasses in the front window. Largely because of the display, Jerry has sold 100 pairs of sunglasses per month at an average cost of \$26 and selling price of \$50. The sales volume has doubled since the display was put in the window. One-fourth of Jerry’s storage space is occupied by 190 ice coolers. The coolers have not been selling as well as Jerry hoped, but he is convinced that a front window display of coolers would increase sales by 50%. The coolers cost Jerry a total of \$2,280 and have been selling at a rate of 100 per month at \$28 each.

1. Assuming that cost of goods sold is the only variable cost, compute the contribution margin per unit for sunglasses and ice coolers.

2. Compute the total contribution margins for both sunglasses and ice coolers assuming window displays and no window displays for both items.

3. What are the economic costs associated with keeping the sunglasses displayed in the store window?

4. What are the economic costs associated with replacing the sunglasses display with an ice cooler display?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...