C-V-PAnalysis The Last Outpost is a tourist stop in awestern resort community. K

Question

C-V-PAnalysis

The Last Outpost is a tourist stop in awestern resort community. Kerry Yost, the ownerof

the shop, sells hand-woven blankets for anaverage price of $30 per blanket. Kerry buys the

blankets from weavers at an average costof $21. In addition, he has selling expenses of$3

per blanket. Kerry rents the building for$300 per month and pays one employee a fixed

salary of $500 permonth.

1. Determine the number of blankets Kerrymust sell to break even.

2. Determine the number of blankets Kerrymust sell to generate a profit of $1,000 per

month.

3. Assume that Kerry can produce and sellhis own blankets at a total variable cost of

$16 per blanket, but that he would need tohire one additional employee at a monthly

salary of $600.

a. Determine the number of blankets Kerrymust sell to break even.

b. Determine the number of blankets Kerrymust sell to generate a profit of $1,000 per

month.

Explanation / Answer

1600Units

1767Units

7200 / 14

585.71Units

a ) If Kerry buys blankets fromweavers Average Price of the Blanket 30.00 Purchase Price of each blanket 21.00 Variable Selling Expenses 3.00 Total Variable Cost (24.00) Unit Contribution 6.00 Annual Fixed Expenses : Rent 300 *12 3,600.00                                    Salary 500 *12 6,000.00 Total Expenses 9,600.00 Break Even Point is given by theformula   BEP = Fixed Expenses / UnitContribution 9600 / 6 1,600.00 Break EvenPoint

1600Units

In order to make a profit of $1000 Sales =( Fixed Expenses + 1000 ) / UnitContribution           =( 9600 +1000 ) / 6

1767Units

b ) Assumption 2 Kerry can produce & sellhis own blanket Average Price of the Blanket 30.00 Total Variable Cost (16.00) Unit Contribution 14.00 Fixed Expenses ( 600 * 12 ) 7,200.00 Break Even Point

7200 / 14

514.29 2 ) In order to make a profit of $1000 Sales =( Fixed Expenses + 1000 ) / UnitContribution           =( 7200 +1000 ) / 14

585.71Units

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