Ally’s friend, Kat, is going to start selling cookies for her at local events. A

Question

Ally’s friend, Kat, is going to start selling cookies for her at local events. Ally is going to give her 40% of the gross profit for each dozen she sells as a commission. The investment and fixed costs have changed but the variable cost for each dozen cookies has not. Since the cookies are so popular they are raising the price to $15 per dozen.

Ally’s costs are:

Initial investment: $450
Fixed costs: $375
Variable costs: $3 (per dozen)

Ally expects Kat to sell 100 dozen cookies at each event. What is Ally’s projected NET profit after ALL expenses including her initial investment for the first twelve events Kat attends and how much will Kat make in commissions?


Ally’s Net Profit = $13,575 ; Kat’s Commission = $3,600

This was covered in Module 6 and the formula is:

FORMULA:    ROI PRICE = UNIT COST + (ROI x INVESTMENT) / UNIT SALES

HINT: Make sure you include all of Ally’s expenses in the right category

1) $3.42

2) $3.72

3) $3.90

4) $4.21

Explanation / Answer

Total cookies to be sold in 12 events = 100 x 12 = 1200 dozens

To determine value of Gross profit, we need to define “Gross Profit”.

We define Gross Profit as per following :

Gross Profit = Total Revenue earned in 12 events – Total cost incurred in 12 events

                     = Price/Dozen x 1200 – ( Fixed cost + Variable cost / dozen x 1200)

                      = 15 x 1200 – ( 375 + 3 x 1200)

                       = 18000 – 375 – 3600

                       = $14025

Note : Initial investment amount has been kept out of consideration for calculating gross profit since initial investment will be realised in more than 12 events

Since Kat is going to make a commission of 40% of Gross profit, total gross profit earned by Kat = 0.40 x $14025 = $5610

KAT IS GOING TO MAKE A COMMISSION OF $5610

Net profit will be defined as :

Net profit = Gross profit – Initial Investment

                 = $14025 - $450

                  = $13575

NET PROFIT = $13575    

Note: ROI price cannot be calculated since ROI value not provided

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