You own a small boutique that sells scented soaps and lotions as well as handmad

Question

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.

Explanation / Answer

Increase in contribution           (218,000 – 127,000 )     =$ 91,000

Less increase in fixed

Rent                        (400 x 12) =$4,800

Utilities                   (150x12)                                        =$1,800

Salary of two employees   (24,000x 2)   =$48000

Increase in profit =$36,400

Option B

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