Suzie’s Silk Scarves is a start-up that sells high quality scarves out of a boutique store. The monthly rent of the store is $1,500 and Suzie has one manager who runs the store and earns $3,000 per month. She leases out a computer and other equipment for her store at a total monthly cost of $600, and spends another $400 each month on advertising in local newspapers and publications. Suzie pays on average $15 to import each scarf from Asia, and invests another $3 per scarf on a fancy packaging box for each scarf. She sells each scarf for $43. How many scarves must Suzie sell each month in order to break even?
To breaki even,
Income - Expense = 0.
X = The # of scarves sold.
43x-1500-3000-600-400-15x-3x = 0
25x - 5500 = 0
25x = 5500
X = 220 Scarves.
To calculate the number of scarves Suzie must sell each month to break even, let's determine her monthly costs and then calculate the break-even point.
1. Calculate Suzie's fixed costs:
- Monthly rent: $1,500
- Manager's salary: $3,000
- Equipment lease: $600
- Advertising costs: $400
Total fixed costs = $1,500 + $3,000 + $600 + $400 = $5,500
2. Calculate Suzie's variable costs per scarf:
- Importing cost per scarf: $15
- Packaging cost per scarf: $3
Total variable costs per scarf = $15 + $3 = $18
3. Calculate the contribution margin per scarf:
Contribution margin per scarf = Selling price per scarf - Variable costs per scarf
Contribution margin per scarf = $43 - $18 = $25
4. Calculate the break-even point in terms of number of scarves:
Break-even point (in number of scarves) = Total fixed costs / Contribution margin per scarf
Break-even point = $5,500 / $25 = 220 scarves
Therefore, Suzie must sell at least 220 scarves each month in order to break even.