Business Math

1) Financial Sustainability |

A retail store has to make profits to survive. Let’s say a cowboy boot store sells its boots for $75 per pair. Its costs of a pair of cowboy boots are $30 per pair, but the staff also is paid $20 per pair. The cost of the cowboy boots and the cost of the staff vary directly with the numbers of cowboy boots sold; these are variable costs. To pay the fixed costs, the retail store management must pay $300 per day for a lease that covers rent, utilities, security, and janitorial services; these costs do not vary with the numbers of cowboy boots sold. What is the daily contribution margin (CM)? What is the daily breakeven quantity (BE) for this firm? Does it make a profit or a loss at sales of 10 cowboy boots per day? How much profit or loss? Does it make a profit or a loss at sales of 25 cowboy boots per day? How much profit or loss? |

1. What is the daily contribution margin $25

$75-($30+$20)= $25

2. What is the daily breakeven quantity? 12ea

Sales 12boots * $75= $900

Variable Expenses 12boots * $30= - $360

12boots * $20= - $240

$300

Fixed Expenses - $300

Net Income $ 0

3. Does it make a profit and a loss at sales of 10 cowboy boots per day?

Net loss -$50

Sales 10boots * $75 = $750

Variable Expenses 10boots * $30 = -$300

10boots * $20 = -$200

$250

Fixed Expenses -$300

Net Income -$ 50

4. Does it make a profit and a loss at sales of 25 cowboy boots per day?

Net Income $325

Sales 25boots * $75 = $1,875

Variable Expenses...