Exotic Roses owned by Margarita Rameriz provides a variety of rose bushes to loc
ID: 2420814 • Letter: E
Question
Exotic Roses owned by Margarita Rameriz provides a variety of rose bushes to local nurseries that sell
Rameriz' roses to the end consumer (landscapers and retail customers). Rameriz grows the roses from
cuttings that she has specifically cultivated for their unusual characteristics (color, size, heartiness and
resistance to disease).
Margarita's roses are in great demand as evidence by the wholse price she charges, $15 per potted plant.
Exotic Roses has the following cost structure:
Fixed Costs per year
Unit Variable Costs
Plant Materials
$ 0.50
Pot
$ 0.30
Labor
$ 8,000.00
$ 0.70
Utilities
$ 9,000.00
Rent
$ 7,500.00
Other
$ 2,500.00
a. How many potted rose plants must Exotic Roses sell to break-even?
b. If Rameriz wants to make operating profits of $10,000, how many potted rose plants must be sold?
c. If Rameriz wants to make an AFTER-TAX profit of $10,000, how many potted rose plants must be sold?
The tax rate is 35%.
Hint: After-tax profit / (1 - tax rate) = Operating Profit
Exotic Roses owned by Margarita Rameriz provides a variety of rose bushes to local nurseries that sell
Rameriz' roses to the end consumer (landscapers and retail customers). Rameriz grows the roses from
cuttings that she has specifically cultivated for their unusual characteristics (color, size, heartiness and
resistance to disease).
Margarita's roses are in great demand as evidence by the wholse price she charges, $15 per potted plant.
Exotic Roses has the following cost structure:
Fixed Costs per year
Unit Variable Costs
Plant Materials
$ 0.50
Pot
$ 0.30
Labor
$ 8,000.00
$ 0.70
Utilities
$ 9,000.00
Rent
$ 7,500.00
Other
$ 2,500.00
a. How many potted rose plants must Exotic Roses sell to break-even?
b. If Rameriz wants to make operating profits of $10,000, how many potted rose plants must be sold?
c. If Rameriz wants to make an AFTER-TAX profit of $10,000, how many potted rose plants must be sold?
The tax rate is 35%.
Hint: After-tax profit / (1 - tax rate) = Operating Profit
Explanation / Answer
Break Even Point = Fixed Costs / Contribution Per unit
where Contribution Per unit = Selling price per unit - Variable cost per unit = ( 15 - 0.5 - 0.3 - 0.7) = 13.50
Fixed COst = 8000 + 9000 + 7500 + 2500 = 27000
Break even point = 27000 / 13.50 = 2000 units
Till 2000 units there is no profit no loss. So for every unit after the Break even would yield an operating profit of 13.50
So to make 10000 profit no of units to be sold above 2000 = 10000 / 13.50 = 741 Units
Total units for 10000 operating profit = 2741 units
When after tax profit = 10000 ; Operating profit = 15385
So to make 15385 profit no of units to be sold above 2000 = 15385 / 13.50 = 1140 Units
Total units for 15385 operating profit = 3140 units
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