Jennifer and Marisa run a flower shop in Brighton and are considering expanding their business by...

 

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Jennifer and Marisa run a flower shop in Brighton and are considering expanding their business by opening a new shop on the other side of the town. They estimate that the new shop will require a full-time employee at a cost of £22,000 per annum. The continuing maintenance of the new shop is estimated to cost £8,000 per annum. The rent and the lighting for the new shop are estimated at £6,000 per annum. Jennifer and Marisa plan to charge £9 per bouquet of flowers and they estimate to sell 80 bouquets per day. They plan to open the shop 350 days per year. The cost of each bouquet is estimated to be £1.50. All bouquets will be sold wrapped in a specal wrapping paper at a cost of £0.25 and a free box of chocolates, which costs £0.60, when a customer buys a bouquet of flowers. Required: a. Identify Which of the costs are fixed and which are variable. b. Calculate the variable cost per bouquet of flowers. c. Calculate the total fixed cost per annum of running the new shop. d. Calculate the break-even point for the number of bouquet of flowers that need to be sold. e. Calculate the margin of safety in bouquet of flowers and comment on the level of risk. f. What other factors might Jennifer and Marisa consider before they make the decision to invest in the new shop? g. Jennifer and Marisa are considering seeding pots of plants and selling them. They have asked for your opinion if break-even analysis is a good technique when more than one product is produced and sold. Evaluate the assumptions underlying break-even analysis. Jennifer and Marisa run a flower shop in Brighton and are considering expanding their business by opening a new shop on the other side of the town. They estimate that the new shop will require a full-time employee at a cost of £22,000 per annum. The continuing maintenance of the new shop is estimated to cost £8,000 per annum. The rent and the lighting for the new shop are estimated at £6,000 per annum. Jennifer and Marisa plan to charge £9 per bouquet of flowers and they estimate to sell 80 bouquets per day. They plan to open the shop 350 days per year. The cost of each bouquet is estimated to be £1.50. All bouquets will be sold wrapped in a specal wrapping paper at a cost of £0.25 and a free box of chocolates, which costs £0.60, when a customer buys a bouquet of flowers. Required: a. Identify Which of the costs are fixed and which are variable. b. Calculate the variable cost per bouquet of flowers. c. Calculate the total fixed cost per annum of running the new shop. d. Calculate the break-even point for the number of bouquet of flowers that need to be sold. e. Calculate the margin of safety in bouquet of flowers and comment on the level of risk. f. What other factors might Jennifer and Marisa consider before they make the decision to invest in the new shop? g. Jennifer and Marisa are considering seeding pots of plants and selling them. They have asked for your opinion if break-even analysis is a good technique when more than one product is produced and sold. Evaluate the assumptions underlying break-even analysis.

Answer rating: 100% (QA)

a Fixed Costs Full Time Employee Salary 22000 per annum Annual ... View the full answer