Natalia makes colorful beaded necklaces and sells them at a local farmer's market. Natalia currently sells her necklaces for $40 each. She spends approximately $18 on the materials (beads, wire, and clasp) and $2 on packaging for each necklace. She pays annual fixed costs of $4,180 ($3,500 for space at the farmer's market, $180 for licenses and permits, and $500 annual depreciation on tent, display cases, and signage). a) How many necklaces does Natalia need to sell in 2021 to break even? 209 necklaces b) How many necklaces does Natalia need to sell in 2021 to earn a profit of $25,000? 1,459 necklaces c) Natalia's best guess is that she will sell 1,500 necklaces in 2021. If she's correct, what is Natalia's expected 2021 profit? $25,820 d) Natalia estimates that if she reduces her selling price by 15% in 2021, she will sell 20% more necklaces. What is Natalia's expected profit if she reduces her selling price by 15%? Natalia estimates that if she instead increases her selling price by 15% in 2021, she will sell 10% fewer necklaces. What is Natalia's expected profit if she instead increases her selling price by 15%? These analyses suggest that a selling price of $ per necklace maximizes expected profit. e) Natalia learns that the fee to rent a space at the farmer's market will be $5,525 in 2022. Natalia wants to increase her selling price just enough to absorb this increased cost. If Natalia wants to earn the same profit in 2021 and 2022 and believes she will sell 1,350 units in both years, what does her per unit selling price need to be in 2022 to pass the increased space fee cost along to her customers? Assume that the necklaces' selling price was $46 in 2021 and that all costs other than the space rental fee are unchanged from 2021 to 2022.
Natalia makes colorful beaded necklaces and sells them at a local farmer's market. Natalia currently sells her necklaces for $40 each. She spends approximately $18 on the materials (beads, wire, and clasp) and $2 on packaging for each necklace. She pays annual fixed costs of $4,180 ($3,500 for space at the farmer's market, $180 for licenses and permits, and $500 annual depreciation on tent, display cases, and signage). a) How many necklaces does Natalia need to sell in 2021 to break even? 209 necklaces b) How many necklaces does Natalia need to sell in 2021 to earn a profit of $25,000? 1,459 necklaces c) Natalia's best guess is that she will sell 1,500 necklaces in 2021. If she's correct, what is Natalia's expected 2021 profit? $25,820 d) Natalia estimates that if she reduces her selling price by 15% in 2021, she will sell 20% more necklaces. What is Natalia's expected profit if she reduces her selling price by 15%? Natalia estimates that if she instead increases her selling price by 15% in 2021, she will sell 10% fewer necklaces. What is Natalia's expected profit if she instead increases her selling price by 15%? These analyses suggest that a selling price of $ per necklace maximizes expected profit. e) Natalia learns that the fee to rent a space at the farmer's market will be $5,525 in 2022. Natalia wants to increase her selling price just enough to absorb this increased cost. If Natalia wants to earn the same profit in 2021 and 2022 and believes she will sell 1,350 units in both years, what does her per unit selling price need to be in 2022 to pass the increased space fee cost along to her customers? Assume that the necklaces' selling price was $46 in 2021 and that all costs other than the space rental fee are unchanged from 2021 to 2022.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
parts d, e
Transcribed Image Text:PROBLEM 3 - COST-VOLUME-PROFIT ANALYSIS
Natalia makes colorful beaded necklaces and sells them at a local farmer's market. Natalia currently
sells her necklaces for $40 each. She spends approximately $18 on the materials (beads, wire, and clasp)
and $2 on packaging for each necklace. She pays annual fixed costs of $4,180 ($3,500 for space at the
farmer's market, $180 for licenses and permits, and $500 annual depreciation on tent, display cases, and
signage).
a) How many necklaces does Natalia need to sell in 2021 to break even?
209
necklaces
b) How many necklaces does Natalia need to sell in 2021 to earn a profit of $25,0o0?
1,459
necklaces
c) Natalia's best guess is that she will sell 1,500 necklaces in 2021. If she's correct,
what is Natalia's expected 2021 profit?
$25,820
d) Natalia estimates that if she reduces her selling price by 15% in 2021, she will sell 20% more necklaces.
What is Natalia's expected profit if she reduces her selling price by 15%?
Natalia estimates that if she instead increases her selling price by 15% in 2021, she will sell 10% fewer
necklaces.
What is Natalia's expected profit if she instead increases her selling price by 15%?
These analyses suggest that a selling price of $
per necklace maximizes expected profit.
e) Natalia learns that the fee to rent a space at the farmer's market will be $5,525 in
2022. Natalia wants to increase her selling price just enough to absorb this
increased cost. If Natalia wants to earn the same profit in 2021 and 2022 and
believes she will sell 1,350 units in both years, what does her per unit selling price
need to be in 2022 to pass the increased space fee cost along to her customers?
Assume that the necklaces' selling price was $46 in 2021 and that all costs other
than the space rental fee are unchanged from 2021 to 2022.
$
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