Sweet Souvenirs Ltd. (SS) sells a large assortment of souvenirs at its shop on t

Question

Sweet Souvenirs Ltd. (SS) sells a large assortment of souvenirs at its shop on the waterfront. It has recently started a program to hire local artists to produce some high-end souvenirs in-house. SS provides the space, materials, and wages to the artists. The first set of souvenirs will be ready for sale soon and SS must decide what the sale price should be. SS estimates that the fixed selling expenses are $12,000, the fixed administrative expenses associated with this program are $25,000, and the fixed production costs are $15,000. On average, per souvenir, variable production cost is $100, selling costs are $15, and variable overhead cost is $5.

Required

Note: Consider each of the following situations independently.

Explanation / Answer

Costs (all units) Per souvenir Fixed selling expenses $        12,000 Fixed admin expenses $        25,000 Fixed prod cost $        15,000 Total fixed cost $        52,000 Var prod cost $                                               100 var selling cost $                                                  15 var overhead cost $                                                    5 Total variable cost $                                               120 Selling price $                                               199 Contribution Margin $                                                  79 = selling price - variable cost/ product units to breakeven 658.227848 .=Fixed cost/ CM(per unit) Round up 659 Answer 1) Selling price $                                               249 Contribution Margin $                                               129 units to breakeven 403.100775 .=Fixed cost/ CM(per unit) Round up 404 Answer 2) Flyer printing cost $ 10,000.00 Revised Fixed cost $ 62,000.00 Selling price $                                               299 Contribution Margin $                                               179 units to breakeven 346.368715 Round up 347 Answer 3) Profit required $    2,500.00 Fixed cost + profit to be recovered $ 54,500.00 Selling price $                                               259 additional variable cost $                                                    4 Revised Contribution Margin $                                               135 units to breakeven 403.703704 Round up 404 Answer 4) Without Martha's suggested option Selling price $                                               229 Contribution Margin $                                               109 units to breakeven 477.06422 .=Fixed cost/ CM(per unit) Round up 478 With Martha's suggested option Selling price $                                               229 additional variable cost $                                                  10 Revised Contribution Margin $                                                  99 units to breakeven 525.252525 Round up 526 They can sell 550 which is more than breakeven point. Hence the solution is profit making Profit $          2,450 If the option 4 is feasible, then SS should go with the solution in part 4. Else, this is also a profitable option = Answer 5)

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