Karen Hefner, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $50 and the average cost of each sale is $30. She also pays a manager $7,500 per month. 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 $17,500 a month, or
2. paying a base rent of $10,000 plus 10% of revenue received, or
3. paying a base rent of $5,500 plus 20% of revenue received
Required:
- Calculate the break-even in units under each option.
- Calculate the net income under each option assuming that units sold are 5,000.
- Which option should Karen choose?Support your answer.
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Option 1
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Option 2
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Option 3
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Break-Even in Units
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Net Income
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