Question

Rita Jekyll operates a sales booth in computer software trade shows, selling an accounting software package, Abacus. She purchases the package from a software company for $160 each. Booth space at the convention hall costs $10,000 per show.

Required

1. Sales at past trade shows have ranged between 400 and 600 software packages per show. Determine the average cost of sales per unit if Ms. Jekyll sells 400, 450, 500, 550, or 600 units of Abacus at a trade show. Use the following chart to organize your answer. Is the cost of booth space fixed or variable?

2. If Ms. Jekyll wants to earn a $55 profit on each package of software she sells at a trade show, what price must she charge at sales volumes of 400, 450, 500, 550, or 600 units?

3. Record the total cost of booth space if Ms. Jekyll attends one, two, three, four, or five trade shows. Is the cost of booth space fixed or variable relative to the number of shows attended?

4. Ms. Jekyll provides decorative shopping bags to customers who purchase software packages. Some customers take the bags; others do not. Some customers stuff more than one software package into a single bag. The number of bags varies in relation to the number of units sold, but the relationship is not proportional. Assume that Ms. Jekyll uses $34 of bags for every 52 software packages sold. What is the additional cost per unit sold? Is the cost fixed or variable?

Answer 1

A.

	Sales Volume in Units
	400	450	500	550	600
Total cost of software	64000	72000	80000	88000	96000
Total cost of booth rental	10000	10000	10000	10000	10000
Total cost of sales	74000	82000	90000	98000	106000
Average cost per unit	185.00	182.22	180.00	178.18	176.67
The cost of booth space is a					Fixed cost

B.

Sales Volume	400	450	500	550	600
Price per package	240.00	237.22	235.00	233.18	231.67

Price per package = Average cost per unit + Desired profit

C.

	Number of Trade Shows Attended
	1	2	3	4	5
Total cost of booth rental	10000	20000	30000	40000	50000
The cost of booth space relative to the number of shows attended is a					Variable cost

D.

Additional cost	0.65	per unit
The cost is a		Variable cost

Additional cost per unit = $34/52 = $0.65