Question

Rainbow Paints operates a chain to retail paint stores. Although the paint is sold under the Rainbow label, it is purchased from an independent paint manufacturer. Guy walker, president of Rainbow paints, is studying the advisability of opening another store. His estimates of monthly costs for the proposed location are:

Fixed costs:
Occupancy costs $ 3,160
Salaries 3,640
Other 1,200
Variable costs (including cost of paint) $ 6 per gallon
Although Rainbow stores sell several different types of paint, monthly sales revenue consistency averages $10 per gallon sold
Required:
a. Walker thinks that the proposed store will sell between 2,200 and 2,600 gallons of paint per month. Compute the amount of operating income that would be earned per month at each of these sales volumes.

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Fixed costs:

Occupancy costs $ 3,160

Salaries 3,640

Other 1,200

Total=

Variable costs (including the cost of paint) $ 6 per gallon

Selling price= $10 per gallon sold

To calculate the operating income we need to use the following formula:

Income= Number of units* selling price - variable cost - fixed costs

Q= 2,200

Income= 2,200*10 - 2,200*6 - 8,000= $800

Q= 2,600

Income= 2,600*10 - 2,600*6 - 8,000= $2,400