Scenario 13-2. Benjamin has been running his kennel service for one year. So far, business has been good and all expenses have been met each month, leaving a small profit. He has a large building capable of handling a total of 35 dogs. Each pen has fresh water supplied through pipes, an automated feeder, and a heating/cooling unit that keeps each pen at a comfortable 68 degrees. Benjamin rents each pen at a price of $30 per day. His total fixed costs each month are $500. Average variable costs are $12.
-In Scenario 13-2, if Benjamin would like a monthly profit of $2,000, using the original numbers, calculate his target return in pen rentals.

Question

Quizplus · Accepted Answer

To achieve a monthly profit of $2,000, Benjamin needs to cover his fixed costs ($500), his desired profit ($2,000), and the variable costs for each pen rental. The price per pen rental is $30, and the variable cost per pen is $12, leaving a contribution margin of $18 per pen rental. The total amount needed each month is $2,500 ($500 fixed costs + $2,000 desired profit). Dividing this total by the contribution margin per pen ($18) gives the number of pen rentals needed: $2,500 / $18 ≈ 138.89, which rounds up to 139 pen rentals each month.