The flowers cost the store $9.50 for each arrangement. The vase costs $8. The florists are paid $12 an hour, and they can make about three of these arrangements per hour, so labor cost is about $4 per arrangement. Rent for the store and overhead expenses for utilities and salaries for sales people and executives total about $125,000 per year.Based on market conditions and an analysis of demand, Pete expects to be able to sell 3,000 arrangements in one year. He would like to achieve a return on sales of 12%. Estimate the Break-Even point (in number of arrangements) for three prices:$60$70$80 Calculate the unit cost of each arrangement at three demand levels:2,500 arrangements3,000 arrangements3,500 arrangements Calculate the cost-plus price based on a return of 0% and based on a return of 12%, based on Pete’s demand estimation of 3,000 arrangements per year. Would you expect flowers to be price elastic (i.e., consumers are relatively price sensitive) or price inelastic (i.e., consumers are price insensitive)? Given all of your above answers, tell me the price point you will recommend to Pete and why.

Introduction:- Cost-based Pricing question of a florists managing his cost and pricing for…

Answered: The flowers cost the store $9.50 for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The flowers cost the store $9.50 for each arrangement. The vase costs $8. The florists are paid $12 an hour, and they can make about three of these arrangements per hour, so labor cost is about $4 per arrangement.
Rent for the store and overhead expenses for utilities and salaries for sales people and executives total about $125,000 per year.
Based on market conditions and an analysis of demand, Pete expects to be able to sell 3,000 arrangements in one year. He would like to achieve a return on sales of 12%.

Estimate the Break-Even point (in number of arrangements) for three prices:
1. $60
2. $70
3. $80

Calculate the unit cost of each arrangement at three demand levels:
1. 2,500 arrangements
2. 3,000 arrangements
3. 3,500 arrangements

Calculate the cost-plus price based on a return of 0% and based on a return of 12%, based on Pete’s demand estimation of 3,000 arrangements per year.

Would you expect flowers to be price elastic (i.e., consumers are relatively price sensitive) or price inelastic (i.e., consumers are price insensitive)?

Given all of your above answers, tell me the price point you will recommend to Pete and why.

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