13 May HOW MANY BOTTLES OF WINE MUST THE STORE SELLPER WEEK IN ORDER FOR THE BUSINESS TO BREAK EVEN?
Tom decides to open a small Italian wine store in an affluent South Florida neighborhood. He will be an absentee owner and has hired Vinnie as the store manager. He has agreed to pay Vinnie a fixed salary of $75,000 per year. Vinnie has hired two additional permanent employees at $30,000 each. The store has operating expenses for rent, utilities, advertising, etc. that occur regardless of the sales level; the pro-forma financial statements show that these expenses will run about $8,750 per month. In addition, Tom will have to borrow money to finance a necessarilylarge inventory, and he estimates interest on these loans willbe $1,000 per month. Tom has a connection in Italy and has negotiated what hethinks is a great deal – a blended wine cost of $52.20 per case of 12 bottles,including freight, across all types and varieties. His market studies indicatethe sales prices for the majority of wine sold in popular wine shops in SouthFlorida range from $8.00 to $50.00 per bottle. Tom carefully studies theseindustry reports and his projections. He figures the sales price at his storewill average $16.50 per bottle. He knows that the store must achieve a minimumsales level before breaking even, and he knows that breakevenneeds to happen fast before he runs out of cash. So he setsweekly sales targets for Vinnie. How many bottles of wine must the store sellper week in order for the business to break even?___________bottles
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