Question

#1 Each basket will contain the following items:

DVD $8.00

Pasta $2.00

Sauces $3.00

Cheeses $4.00

Pasta tongs $5.00

Wines $8.00

Baskets $4.00

Cellophane $1.00

Ribbons $1.00

1 gal. of gas $4.00

I can make 20 gift baskets. I estimate my fixed costs to include the salary I want to achieve $200 and the utilities that I may use to produce these which is around $25.  

If I want to realize a 25% return on sales, where should I price my product for the holiday season?

Answering the question: What percent of each dollar sales = profit? A 20% return on sales means that for every $1.00 of sales you created, 20 cents of it was profit.  

#2 For the holiday season, I plan to make and sell a game. Each game will need:

Piping $15.00

Golf balls $6.00

Cords $2.00

The plan is to sell each of these games for $38. I can make 40 games before the holidays. My only fixed costs will be a salary I hope to make of $200.00. Calculate my return on sales on this effort: Using the same formula, but you are solving for the actual percentage return on sales.

?% = Total Revenue – Total Cost

                         Total Revenue

Answer 1

Variable Cost	$
DVD	8
Pasta	2
Sauces	3
Cheeses	4
Pasta tongs	5
Wines	8
Baskets	4
Cellophane	1
Ribbons	1
Gas	4
Total Variable Cost per Basket (A)	40
Number of baskets(B)	20
Total Variable cost(C)=(A)*(B)	800
Fixed Cost
Salary	200
Utility	25
Total Fixed Cost(D)	225
Total Cost(C)+(D)	1025

Return on sales=25%

Let sale be 100

Then Profit=25

Cost=100-25=75

It means cost vaule is 75

In our case cost is 1025 that is equals to 75%

Sale=1025/75%=1366.67

Price of the product=Sale/Units

=1366.67/20

=$68.33 per Basket

#2

Variable Cost	$
Piping	15
Golf balls	6
Cords	2
Variable Cost per basket(A)	23
number of games(B)	40
Total Variable Cost (C)=(A)*(B)	920
Total Fixed Cost i. e. Salary (D)	200
Total Cost (C)+(D)	1120
Sale Revenue=38*40	1520

Return on Sales=(Total Revenue-Total Cost)/Total Revenue

=(1520-1120)/1520

=26.32%

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