Question

If a store pays a base rent of $1000 per month plus 3% of annual sales in excess of $240,000. If the store was charged $28,800 in rent for the year, what were its sales for that year?

a) $240,000
b) $800,000
c) $960,000
d) $1,000,000

Answer 1

To calculate the store's annual sales, we subtract the annual base rent from the total rent, then divide that amount by the percentage charged for sales over the threshold, and finally, add the excess sales threshold back to find the total sales. The store's sales for that year were $800,000.

Step-by-step explanation:

If a store pays a base rent of $1000 per month plus 3% of annual sales in excess of $240,000 and was charged $28,800 in rent for the year, we can calculate its annual sales by setting up an equation. The annual base rent is 12 months times $1000, which equals $12,000. This means the additional rent paid from the percentage of sales is $28,800 - $12,000 = $16,800. To find the sales that resulted in this additional rent, we use the formula:

Additional Rent = Percentage of Sales x (Sales - Excess Sales Threshold)

Therefore:

$16,800 = 0.03 x (Sales - $240,000)

To find the sales, we divide both sides by 0.03 and add $240,000:

Sales = ($16,800 / 0.03) + $240,000

Sales = $560,000 + $240,000

Sales = $800,000

Thus, the correct answer is b) $800,000.