Hand Woven
by admin on Thursday, October 6th, 2011 | Comments Off
Hand Woven
Can you help me solve this accounting equation?
C-V-P Analysis: The last Outpost is a tourist stop in a western resort community, kerry Yost, the owner of the shop, sells hand woven blankets for an average price of $30 per blanket. Kerry buys the blankets from weavers at an average cost of $21. In addition, he has selling expences of $3 per blanket. Kerry rents the building for $300 per month and pays one employee a fixed salary of $500 per month.
Determine the number of blankets kerry must sell to break even?
Determine the number of blankets kerry must sell to generate a profit of $1000 per month
Assume that Kerry can produce and sell his own blankets at a total variable cost of $16 per blanket, but that he would need to hire one additional employee at a monthly salary of $600
Can you help me solve this accounting equation?
OK, if the shop sells a blanket for $30 and they pay $21 for the blanket + $3 to sell it then they make $6 on each blanket they sell.
At $6/blanket the shop needs to sell 50 blankets to pay the rent ($300/$6) and 84 blankets ($500/$6) to pay their employee for a total of 134 blankets to break even.
To make a profit of $1000 they must make enough to cover $1000 profit + $300 rent + $500 salary or a total of $1800.
$1800/$6 per blanket means they would need to sell 300 blankets.
Now to determine if they should make or buy blankets.
Right now it is costing $24 ($21 +$3) to make and sell blankets, but they can make blankets for $16 + $600 for an employee. This will mean that they save $8/blanket ($24-$16) but they have to pay $600 for the employee. $600 salary/$8 savings per blanket = 75 blankets, so if the employee would need to make 75 blankets per month, anything more and they should make the blankets, anything less and they should buy them.
Good Luck!
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