Question

PROBLEM 2
While reviewing sales of gift shop items for the past six months, the owner of the Red Mill Inn
prepared the analysis shown below.
		KEY	KITCHEN			SWEAT
		CHAIN	TOWEL	MUG	T-SHIRT	SHIRT
Sales		$ 270.00	$ 644.40	$ 742.50	$   3,828.00	$   3,900.00
Variable costs		54.00	234.00	187.50	1,560.00	1,680.00
Contribution Margin		$ 216.00	$ 410.40	$ 555.00	$   2,268.00	$   2,220.00
Fixed costs		250.00	250.00	250.00	400.00	400.00
Net Income		$   (34.00)	$ 160.40	$ 305.00	$   1,868.00	$   1,820.00
30% of the fixed costs of each item are avoidable. Show calculations to determine if
the key chain product is profitable or not.

Answer 1