Bouquets (EB) makes and sells flower bouquets. EB is considering opening a new store in the local mall. The mall has several empty shops and EB is unsure of the demand for its product. The mall has offered EB two alternative rental agreements. The first is a standard fixed-rent agreement where EB will pay the mall $ 5 comma 700 per month. The second is a royalty agreement where the mall receives $ 12 for each bouquet sold. EB estimates that a bouquet will sell for $ 51 and have a variable cost of $ 32 to make (including the cost of flowers and commission for the salesperson)

1) calculate indifference point

2) Next assume that EB signs a sales agreement with a local flower stand and saves $ 7 in variable costs per bouquet. Calculate the new indifference point.

3)EB estimates that the store is equally likely to sell 260, 460, 660, 860, or 1,060 arrangements. Using information from the original problem, make atable that shows the expected profit at each sales level under each rental agreement. What is the expected value of each rental agreement? Which rental agreement should EB choose?

Answer rating: 100% (QA)

Answer 1 Calculating the indifference point The indifference point is the level of sales where the p... View the full answer