Reference no: EM131913925

Problem - Break-Even and Target Profit Analysis

The Marbury Stein Shop sells steins from all parts of the world. The owner of the shop, Clint Marbury, is thinking of expanding his operations by hiring college students, on a commission basis, to sell steins at the local college. The steins will bear the school emblem.

These steins must be ordered from the manufacturer three months in advance, and because of the unique emblem of each college, they cannot be returned. The steins would cost Marbury $15 each with a minimum order of 200 steins. Any additional steins would have to be ordered in increments of 50.

Because Marbury's plan would not require any additional facilities, the only costs associated with the project would be the cost of the steins and the cost of sales commissions. The selling price of the steins would be $30 each. Marbury would pay the students a commission of $6 for each stein sold.

Required:

1. To make the project worthwhile in terms of his own time, Marbury would require a $7,200 profit for the first six months of the venture. What level of sales in units and dollars would be required to attain this target net operating income?

2. Assume that the venture is undertaken and an order is placed for 200 steins. What would be Marbury's break-even point in units and in sales dollars?