partial credit,Exercise 3-29 (similar to)

Question Help

Entertaining

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

$5,400

per month. The second is a royalty agreement where the mall receives

$15

for each bouquet sold. EB estimates that a bouquet will sell for

$54

and have a variable cost of

$36

to make (including the cost of flowers and commission for the salesperson).Requirements

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Requirement 1

Determine the formula used to calculate the breakeven units.

Number of units to breakeven

=

Fixed cost Contribution margin per unit

Calculate the breakeven point in units for: (For entries with a $0 balance, make sure to enter "0" in the appropriate field.)

	Units
Standard fixed rent agreement	300
Royalty agreement	0

Requirement 2

In order to determine the range of sales levels EB would prefer for each agreement, we must first calculate the indifference point. Determine the formula to calculate the indifference point for EB.

Fixed rent agreement					=	Royalty agreement
Sales	-	Total variable costs	-	Fixed cost	=	Sales	-	Total variable costs	-	Fixed cost

Now calculate the indifference point.

The indifference point is at

360360

units.EB would prefer the fixed rent agreement at

sales more than the indifference point

.The royalty agreement would be preferred at

0 units up to the indifference point

.

Requirement 3

Next assume that EB signs a sales agreement with a local flower stand and saves

$9

in variable costs per bouquet. Calculate the new indifference point.The indifference point is at

360360

units.The answer from Requirement 3 is

the same as

the answer in Requirement 2.

Requirement 4

Using information from the original problem, prepare a table that shows the expected profit at each sales level under each rental agreement. The sales levels are

240,

440,

640,

840,

or

1,040

arrangements. Begin with the fixed rent agreement. (Use parentheses or a minus sign for losses.)

Fixed rent agreement
			Expected
Sales level	Profit/(Loss)		Profit/(Loss)
240
440
640
840
1,040
Total expected profit/(loss)

Please send me the whole answer" thanks