Refer to Scenario 9.9 below to answer the question(s) that follow.
SCENARIO 9.9: Sponsors invest $250,000 in a new greeting card business on the promise that they will earn a return of 10% per year on their investment. The business sells 52,000 greeting cards per year. The fixed costs for the business include the return to investors and $79,000 in other fixed costs. Variable costs consist of wages ($1,000 per week) plus materials, electricity, etc. ($3,000 per week). The business is open 52 weeks per year.
-Refer to Scenario 9.9. The profit for the business is ________ when the average price per greeting card is $7.50.
A) $78,000
B) $182,000
C) $286,000
D) $311,000

Question

Quizplus · Accepted Answer

The profit can be calculated as follows: Total revenue = 52,000 cards * $7.50/card = $390,000. Total variable costs = ($1,000 + $3,000) * 52 weeks = $208,000. Fixed costs = $79,000 + $25,000 (10% of $250,000 investment) = $104,000. Profit = Total revenue - Total variable costs - Fixed costs = $390,000 - $208,000 - $104,000 = $78,000.