Reference no: EM132648756

The Moreno Patchwork Shop sells patches from all parts of the world. The owner of the shop, Kat Moreno, is thinking of expanding her operations by hiring local college students, on a commission basis, to sell patches at the local college. The patches will bear the school emblem. These patches must be ordered from the manufacturer three months in advance and because of the unique emblem of each college, they cannot be returned. The patches would cost Ms. Moreno P15 each with a minimum order of 200 patches. Any additional patches would have to be ordered in increments of 50.

• Since M. Moreno's plan would not require any additional facilities, the only costs associated with the project would be the cost of the patches and the cost of sales commissions. The selling price of the patches would be P30 each. Ms. Moreno would pay the students a commission of P6 for each patch sold.

Required:

Question 1. To make the project worthwhile in terms of her own time, Ms. Moreno would require a P7,200 profit for the first six months of the venture. What level of sales in units and pesos would be required to meet this target net operating income figure? Show all computations.

Question 2. Assume that the venture is undertaken, and an order is placed for 200 patches. What would be Ms. Moreno's break-even point in units and in sales pesos? Show computations and explain the reasoning behind your answer .