Zhang Olsen, a florist, operates retail stores in several shopping malls. The average selling price of an arrangement is $30 and the average cost of each sale is $18. A new mall is opening where Zhang wants to locate a store, but the location manager is not sure about the rent method to accept. The mall operator offers the following three options for its retail store rentals:
- paying a fixed rent of $15,000 a month, or
- paying a base rent of $9,000 plus 10% of revenue received, or
- paying a base rent of $4,800 plus 20% of revenue received up to a maximum rent of $25,000.
Required:
- For each option, compute the breakeven sales and the monthly rent paid at break-even.
- Compare option 1 with: Option 2, and, ii. with Option 3, and analyse, at what level of sale both options will have same preference (for both i, and ii), and how these preferences will change if sale goes beyond those levels.
