Adamo, 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. 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.