Ray Smith, a gift basket retailer, has stores in three shopping centres. The average selling price of a decorated gift basket is $60, and the average cost of each sale is $36. A new shopping centre is opening where Ray wants to open a store, but he is not sure which rental option he should choose. The landlord has offered three options for the new store: 1. paying a fixed rent of $20,000 a month, or 2. paying a base rent of $14,500 a month plus 8% of monthly revenue received, or 3. paying a base rent of $7,200 plus 14% of revenue received up to a maximum rent of $30,000. Required: For each option, compute the breakeven sales and the monthly rent paid at break-even.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Ray Smith, a gift basket retailer, has stores in three shopping centres. The average selling price of a
decorated gift basket is $60, and the average cost of each sale is $36. A new shopping centre is
opening where Ray wants to open a store, but he is not sure which rental option he should choose.
The landlord has offered three options for the new store:
1. paying a fixed rent of $20,000 a month, or
2. paying a base rent of $14,500 a month plus 8% of monthly revenue received, or
3. paying a base rent of $7,200 plus 14% of revenue received up to a maximum rent of
$30,000.
Required:
For each option, compute the breakeven sales and the monthly rent paid at break-even.
Transcribed Image Text:Ray Smith, a gift basket retailer, has stores in three shopping centres. The average selling price of a decorated gift basket is $60, and the average cost of each sale is $36. A new shopping centre is opening where Ray wants to open a store, but he is not sure which rental option he should choose. The landlord has offered three options for the new store: 1. paying a fixed rent of $20,000 a month, or 2. paying a base rent of $14,500 a month plus 8% of monthly revenue received, or 3. paying a base rent of $7,200 plus 14% of revenue received up to a maximum rent of $30,000. Required: For each option, compute the breakeven sales and the monthly rent paid at break-even.
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