You own a small boutique that sells scented soaps and lotions as well as handmade jewelry. You are considering moving locations to a higher-traffic area of town. You believe this will increase your contribution margin from $127,000 to $218,000 per year. Rent, however, will increase by $400 per month, and utilities will increase by $150 per month. You will also need to hire two additional employees at a cost of $24,000 each annually.

Should you make the move?

A. Yes, because profit would increase by $84,400 annually.

B. Yes, because profit would increase by $36,400 annually.

C. No, because profit would decrease by $48,000 annually.

D. No, because profit would decrease by $6,600 annually.

Question

Zaria Hoffman

Business

20 September, 18:53

You own a small boutique that sells scented soaps and lotions as well as handmade jewelry. You are considering moving locations to a higher-traffic area of town. You believe this will increase your contribution margin from $127,000 to $218,000 per year. Rent, however, will increase by $400 per month, and utilities will increase by $150 per month. You will also need to hire two additional employees at a cost of $24,000 each annually.

Should you make the move?

A. Yes, because profit would increase by $84,400 annually.

B. Yes, because profit would increase by $36,400 annually.

C. No, because profit would decrease by $48,000 annually.

D. No, because profit would decrease by $6,600 annually.

+2

Answers (1)

Know the Answer?

Jaidyn Banks · Answer 1

The correct answer is B.

Explanation:

Giving the following information:

You believe this will increase your contribution margin from $127,000 to $218,000 per year. Rent, however, will increase by $400 per month, and utilities will increase by $150 per month. You will also need to hire two additional employees for $24,000 each annually.

We need to calculate the effect of moving in the net income of the company:

Effect on income = (218,000 - 127,000) - (400*12) - (150*12) - 24,000*2

Effect on income = $36,400 increase