The Shopping Bag Is A Thrift Store That Sells Used Clothing
the Shopping Bag Is A Thrift Store That Sells Used Clothing
Assume that variable costs associated with selling each item on average is $0.50. Average selling price of each item is $2.50. The store has the following expenses incurred on a monthly basis: Labor/payroll: $900 Telephone/Internet: $50 Office supplies: $25 Other supplies: $25. Assume that there are no taxes; Show all your calculations for all questions: a) How many clothing items should the store sell per month to breakeven? a) How much revenue per month should it make to breakeven? b) How much revenue per month should it make to create a profit of $2000?
Paper For Above instruction
Introduction
The profitability analysis of a thrift store, such as "The Shopping Bag," involves determining the break-even point and the sales needed to achieve specified profit levels. Given the average selling price and variable costs per item, along with fixed monthly expenses, we can calculate the number of units that must be sold to cover all costs and attain target profit goals. This report details the calculations for the break-even sales volume, break-even revenue, and required revenue for a targeted profit of $2000.
Calculation of Break-Even Point in Units
The first step is to identify the contribution margin per unit, which is the difference between the selling price and the variable cost per item. The contribution margin per unit is calculated as:
- Selling price per item = $2.50
- Variable cost per item = $0.50
- Contribution margin per unit = $2.50 - $0.50 = $2.00
Next, determine the total fixed costs incurred monthly:
- Labor/payroll = $900
- Telephone/Internet = $50
- Office supplies = $25
- Other supplies = $25
- Total fixed costs = $900 + $50 + $25 + $25 = $1,025
To find the break-even sales volume in units, use the formula:
Break-even units = Total Fixed Costs / Contribution Margin per Unit
Plugging in the values:
Break-even units = $1,025 / $2.00 = 512.5 units
Since the store cannot sell a fraction of an item, it must sell at least 513 items per month to break even.
Break-Even Revenue Calculation
The total revenue at the break-even point can be calculated by multiplying the number of units needed to break even by the selling price per unit:
Break-even revenue = 513 items * $2.50 = $1,282.50
Revenue for Achieving a Profit of $2000
To determine the revenue needed to attain a profit of $2000, we first find the total sales units required using:
Total units = (Total Fixed Costs + Desired Profit) / Contribution Margin per Unit
Calculating total units:
Total units = ($1,025 + $2000) / $2.00 = $3,025 / $2.00 = 1,512.5 units
Again, since partial units are not feasible, the store needs to sell at least 1,513 units per month.
Next, the required monthly revenue to achieve this sales volume is:
Required revenue = 1,513 units * $2.50 = $3,782.50
Conclusion
The thrift store must sell at least 513 clothing items per month to break even, which translates to approximately $1,282.50 in revenue. To generate a profit of $2000, it needs to sell at least 1,513 items, resulting in a revenue target of approximately $3,782.50. These calculations assist in strategic planning for sales targets and revenue goals, ensuring the store can cover its costs and achieve desired profitability levels.
References
- Horngren, C. T., Sundem, G. L., Stratton, W. O., Burgstahler, D., & Schatzberg, J. (2013). Introduction to Management Accounting. Pearson.
- Drury, C. (2013). Management and Cost Accounting. Cengage Learning.
- Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting. McGraw-Hill Education.
- Hilton, R. W., & Platt, D. (2016). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
- Blocher, E., Stout, D., Juras, P., & Cokins, G. (2019). Cost Management: A Strategic Emphasis. McGraw-Hill Education.
- Kaplan, R. S., & Cooper, R. (1998). Cost & Effect: Using Integrated Cost Systems to Drive Organizational Improvement. Harvard Business School Press.
- Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2015). Managerial Accounting. Wiley.
- Anthony, R. N., & Govindarajan, V. (2014). Management Control Systems. McGraw-Hill Education.
- Langfield-Smith, K., Thorne, H., & Hilton, R. (2018). Management Accounting: Information for Managing and Creating Value. McGraw-Hill Education.
- Yamey, G., & Sharma, S. (2017). Cost analysis and profit planning in retail businesses. Journal of Retailing and Consumer Services, 35, 12-18.