Mark Leahy is considering opening a greeting card shop. Mr.Leahy estimates that the rental cost of the store will be $550 permonth. Other relevant costs include:
Greeting cards $0.50 per card sold
Telephone services $95 per month
Electricity $200 per month
Miscellaneous fixed costs $150 per month
Miscellaneous variable cost $0.10 per card sold
Mr. Leahy intends to pay salaries to himself and one part-timestore clerk of $1,200 per month, regardless of the number of cardssold.
At present, he estimates an average greeting card sellingprice of $2 per card.
Required
a. Assuming Mr. Leahy opens the store in October 20x1 and,that month, he sells 3,000 greeting cards, prepare a contributionincome statement for the first month of operations.
b. Using your information from the Contribution IncomeStatement, compute the Leahy Greeting Card Company’s monthlybreak-even point in sales $ and in unit sales.
c. If the greeting card store’s unit sales increase by 10%, byhow much will operating profit increase? Also, at the new saleslevel, i.e. with the 10% increase, compute the store’smonthly:
i. Contribution margin
ii. Total operating profit
iii. Break-even units and sales dollars
d. Ignoring part c above, suppose the greeting card companypays $150 for advertising with the expectation of increasing unitsales by 15%, at this new sales level, compute the store’s newmonthly:
i. Contribution margin
ii. Operating profit
iii. Break-even units and sales
