Karen Hefner, a Florist, Operates Retail Stores in Several Shopping

question 126

Essay

Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Karen wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals:
1.paying a fixed rent of $15,000 a month, or
2.paying a base rent of $9,000 plus 10% of revenue received, or
3.paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000.
Required:
a.For each option, compute the breakeven sales and the monthly rent paid at break-even.
b.Beginning at zero sales, show the sales levels at which each option is preferable up to 5,000 units.

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Definitions:

Social Influence

The effect that the words, actions, or mere presence of other people have on our thoughts, feelings, attitudes, or behaviors.

Obedience

A form of social influence where an individual follows the directions of an authority figure or a set of rules, often disregarding their own preferences or moral standings.

Compliance

The act of conforming to a request, rule, or standard.

Group Polarization Effect

The tendency for a group's prevailing opinions to become more extreme following group discussion.