Rainbow Paints operates a chain of 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 as follows: Fixed costs: Occupancy costs Salaries Other Variable costs (including cost of paint) $6 per gallon Although Rainbow stores sell several different types of paint, monthly sales revenue consistently averages $10 per gallon sold. Required: a. Compute the contribution margin ratio and the break-even point in dollar sales and in gallons sold for the proposed store. c. 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. a. Contribution margin ratio a. Break-even sales volume in dollars a. Break-even sales volume in gallons c. Operating income for 2,200 Gallons c. Operating income for 2,600 Gallons $ 3,160 3,640 1,200 % gallons

Rainbow Paints operates a chain of 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 as follows: Fixed costs: Occupancy costs Salaries Other Variable costs (including cost of paint) $6 per gallon Although Rainbow stores sell several different types of paint, monthly sales revenue consistently averages $10 per gallon sold. Required: a. Compute the contribution margin ratio and the break-even point in dollar sales and in gallons sold for the proposed store. c. 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. a. Contribution margin ratio a. Break-even sales volume in dollars a. Break-even sales volume in gallons c. Operating income for 2,200 Gallons c. Operating income for 2,600 Gallons $ 3,160 3,640 1,200 % gallons

Essentials of Business Analytics (MindTap Course List)

2nd Edition

ISBN:9781305627734

Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson

Chapter15: Decision Analysis

Section: Chapter Questions

Problem 5P: Hudson Corporation is considering three options for managing its data warehouse: continuing with its...

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Make or Buy - Home Grocery (HG) provides home delivery of groceries. Customers submit orders to the HG website by selecting the needed items from a menu. Currently, HG has employees who deliver the groceries, but the company is considering the option of contracting out deliveries. The fixed cost of the grocery delivery operation is $500,000 per year, of which, $200,000 is avoidable if grocery deliveries are contracted out. A statistical study suggests delivery costs vary with both the number of customers and the number of items purchased. On average, the fixed annual delivery cost per customer is $250 and the average variable delivery cost of each grocery item delivered is $0.50. On average, each customer purchases 1,000 grocery items per year. Therefore, if there are 2,000 customers budgeted, the number of grocery item deliveries will be 2 million. Custom delivery (CD) has offered to deliver groceries for HG as a flat rate of $850 per customer per year irrespective of the number of…
Hudson Corporation is considering three options for managing its data warehouse: continuing with its own staff, hiring an outside vendor to do the managing, or using a combination of its own staff and an outside vendor. The cost of the operation depends on future demand. The annual cost of each option (in thousands of dollars) depends on demand as follows: If the demand probabilities are 0.2, 0.5, and 0.3, which decision alternative will minimize the expected cost of the data warehouse? What is the expected annual cost associated with that recommendation? Construct a risk profile for the optimal decision in part (a). What is the probability of the cost exceeding $700,000?
Reubens Deli currently makes rolls for deli sandwiches it produces. It uses 30,000 rolls annually in the production of deli sandwiches. The costs to make the rolls are: A potential supplier has offered to sell Reuben the rolls for $0.90 each. If the rolls are purchased, 30% of the fixed overhead could be avoided, If Reuben accepts the offer, what will the effect on profit be?
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