Zoe's Fresh Flowers is new business ready to open a store in the Westfield shopping centre nearby. Westfield has a number of florist shops already, so Zoe is anxious about the demand for her flower arrangements. Westfield has two options available for rental contracts:

a) A standard fixed rent agreement of $9,000 per month; or

b) A commission contract based on 21% of sales revenue with $4,500 per month minimum rent.

Zoe estimates that a bouquet will sell for $95 and have a variable cost of $43 to make and a 11% sales commission for the shop attendant.

Required: 1. What is the break-even point in units under each rental agreement? [5 marks]

2. Zoe is uncertain if she will sell 200, 400, 600, 800 or 1000 arrangements per month. Prepare a table that shows the expected profit at each sales level under each rental agreement. For what range of sales levels will Zoe prefer:

(a) the fixed rent agreement or (b) the royalty agreement? [10 marks]

3. If Zoe signs a sales agreement with a local street vendor rather than Westfield, it will save her both rental contract options and sales commission. However, she could only sell the flower arrangements for $75 to the vendor. Explain how would this affect your answer in requirements 2?