Question

Exotic Roses, owned by Margarita Rameriz, provides a variety of rare rose bushes to local nurseries that sell Rameriz's roses to the end consumer (landscapers and retail customers). Rameriz grows the roses from cuttings that she has specifically cultivated for their unusual characteristics (color, size, heartiness, and resistance to disease). Margarita's roses are in great demand as evidenced by the wholesale price she charges nurseries, $15 per potted plant. Exotic Roses has the following cost structure (variable costs are per potted plant): Fixed Costs per Year Variable Costs Plant materials $ 0.50 Pot 0.30 Labor $ 8,000 0.70 Utilities 9,000 Rent 7,500 Other costs 2,500 Required: a. How many potted rose plants must Exotic Roses sell each year to break even? b. If Rameriz wants to make profits of $10,000 before taxes per year, how many potted rose plants must be sold? c. If Rameriz wants to make profits of $10,000 after taxes per year, how many potted rose plants must be sold assuming a 35 percent income tax rate?

Answer 1

Answer:

A) break even point= 1407 pots

B) pots= 2148 units

C) pots= 2547 units

Explanation:

We were provided with the following information:

Price= $15

Variable Costs:

Plant materials $ 0.50

Pot 0.30

Labor $ 8,000 ($0.70 hour)

Fixed Costs

Utilities 9,000

Rent 7,500

Other costs 2,500

A) break-even point= fixed cost/ contribution margin

Fixed cost= 9000+7500+2500= $19000

CM= P - Vc= 15 - (0,50+0,30+0,70)=$13,5

break-even point= 19000/13,5= 1407 units

B) Profit= $10000

break-even point= (fixed cost+profit)/ contribution margin

break-even point= 29000/13,5= 2148 units

C) t= 0,35

Profit before taxes= profit after taxes/(1-t)= 10000/0,65=$15385

break-even point= (fixed cost+profit before taxes)/ contribution margin= (15385+19000)/ 13,5= 2547 units