1. Daisy’s Donuts needs your help in calculating their break-even point. They pay $3000 in rent and $2000 in other fixed costs per month. The cost to make each donut is $0.10. Daisy sells her donuts for $0.50 each. a. How many donuts must Daisy sell to break even each month?

b. What is Daisy’s profit margin?

Andy’s car wash washed 2000 cars in June. The cost of water, soap, and hydro to wash each car are $2.00. Andy charges $5.00 for each car wash. His total fixed costs are $9000.

c. Did Andy break even in June? How do you know?
Bep = fixe9000/5-2
= 9000/3
= 3000 cars
d. How much profit or loss did he have for the month?
2. May purchases scarves for $30 and sell them for $100.

a. What is her profit margin?

b. What is her markup?

c. If she discounted the scarves by 10%, what would the new price be?

Stylogel wants to price a new style of the pen for the retail market. Its fixed costs will be $500 000 per year. It is examining three price points to the retailer: $1, $2.50, and $5, with a manufacturer’s suggested retail price of $2, $5, and $10 respectively. The variable costs of the pens depend on the price point. The $1 pen has variable costs of $.25 because it has little packaging and is made of basic materials. The $2.50 pen has little packaging as well, but the materials are of better quality, so its variable costs are $.50. The $5 pen is made of metal and comes in a gift box; therefore, its variable costs are $2 per pen. Advise Stylogel as to the price it should select.

You have decided to start up your own business for the summer rather than getting a summer job. A business contact that you know can supply you with Nike “knock-off” hooded sweaters at $10 each. The sweaters look the same and are of similar quality to true Nile sweaters that retail in other stores for $60 each. The “knock-off” sweaters have the brand name “Nik” and a swoosh logo very similar to the Nike sweaters.

You go and visit your local shopping mall and find out that there are two possible Kiosk locations that you can rent for July and August. The Kiosk that rents for $500 per week is located at the far end of the mall behind the food court. You note that there is not much shopper traffic in this area as most shoppers just grab something to eat and return to the main mall. The other Kiosk rents for $1000 a week and is located right in the middle of the mall, in front of a store that sells Nike sweaters. Both locations have additional utility costs of $250 per week.

You are going to hire a sales associate to run the Kiosk since you rather be playing golf during the summer. You calculate that this helper will work 35 hours per week. The going rate for sales associates in the mall is $10 per hour and 10% commission of the sales they make. You notice that there are several stores in the mall with “sales help wanted” signs.

Answer the following questions:

Determine all the fixed costs. These are the costs (expenses that remain the same irrespective of how much you sell.
How much would you pay your employee? Give at least 2 reasons for your choice.
What is the relationship between the selling price and demand for the sweaters?
What else, other than price affects the demand for the sweaters? Indicate at least 2 different strategies that you can try to increase the demand for your sweater.
Establish a selling price. Give at least 2 reasons for your choice.
What are your variable costs (expenses that are directly related to how much you sell – the more you sell the higher they are)?
Based on your selling price, what is your profit per sweater sold (how much do you make for every sweater sold?
Determine how many sweaters you have to sell before you start making money (to cover all your fixed and variable costs).
Your golf membership and pay fees for the summer are $6,000. How many sweaters are you going to have to sell to make sure that you make enough profit so that you can play all summer?