Query Company Sells Pillows for $25

question 185

Essay

Query Company sells pillows for $25.00 each. The manufacturing cost, all variable, is $10 per pillow. The company is planning on renting an exhibition booth for both display and selling purposes at the annual crafts and art convention. The convention coordinator allows three options for each participating company. They are:
1.paying a fixed booth fee of $5,010, or
2.paying an $4,000 fee plus 10% of revenue made at the convention, or
3.paying 20% of revenue made at the convention.
Required:
a.Compute the breakeven sales in pillows of each option.
b.Which option should Query Company choose, assuming sales are expected to be 800 pillows?

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Definitions:

Fasb

The Financial Accounting Standards Board, an organization that establishes accounting and financial reporting standards for companies and nonprofits in the United States.

Standards-Setting Body

An organization or group responsible for developing and issuing standards, such as accounting or auditing standards.

Diluted Earnings Per Share

A metric that shows the quality of a company's earnings per share if all convertible securities were converted into new shares.

Potentially Dilutive Securities

Financial instruments that could decrease earnings per share if converted to common stock, such as convertible bonds, options, and warrants.