Question

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 $5,800 per month. The second is a royalty agreement where the mall receives $8 for each bouquet sold. EB estimates that a bouquet will sell for $53 and have a variable cost of $43 to make (including the cost of flowers and commission for the salesperson). Requirements Calculate the new indifference point. The indifference point is at 725 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 300, 500, 700, 900, or 1,100 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) 300 500 700 900 1,100 Total expected profit (loss) Enter any number in the edit fields and then click Check Answer. parts 2 remaining Clear All Check Answer

Answer 1

fixed rental agrrement
sales level	profit/loss	expected profit/loss
300	-1800	-1800
	300x10-5800
	contribution magin-fixed cost
500	-800	-800
	500x10-5800
700	1200	1200
	700x10-5800
900	3200	3200
	900x10-5800
1100	5200	5200
	1100x10-5800
contribution margin
53-43	10
royalty agreement
sales level	profit/loss	expected profit/loss
300	600	600
	300x2
500	1000	1000
	500x2
700	1400	1400
	700x2
900	1800	1800
	900x2
1100	2200	2200
	1100x2
contribution margin
53-43-8	2
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