Question

A fledgling entrepreneur decides to sell drinks from a stall in a street festival. The festival lasts for one day and only payments in cash are accepted. The stall costs $200 to rent and the owner knows that the contribution margin for each sale is $1.50. After the festival is over the owner has achieved a net income of $484. How many drinks were sold? You may assume that there were no fixed or variable costs other than those mentioned above

Answer 1

To determine the number of drinks sold at the festival, we use the net income and contribution margin in a simple equation, which reveals that the entrepreneur sold 456 drinks.

Step-by-step explanation:

The student's question revolves around a simple profit calculation and determination of the number of units sold based on the given financial data from a festival stall business operation. To calculate the number of drinks sold by the entrepreneur, we must use the formula:

Net Income = (Sales x Contribution Margin) - Fixed Costs

Given that the net income after the festival is $484, the contribution margin per sale is $1.50, and the fixed cost for renting the stall is $200, the calculation would look like this:

$484 = (Number of Drinks Sold x $1.50) - $200

We can rearrange this equation to solve for the Number of Drinks Sold:

Number of Drinks Sold = ($484 + $200) / $1.50

Number of Drinks Sold = $684 / $1.50

Number of Drinks Sold = 456

Therefore, the entrepreneur sold 456 drinks during the festival.