You have decided to start up your own business for the summer rather than getting a summer job. A business contact that you know can supply you with Nike “knock-off” hooded sweaters at $10 each. The sweaters look exactly the same and are of similar quality to true Nike sweaters that retail in other stores for $60 each. The “knock-off” sweaters have the brand name “Nik” and a swoosh logo very similar to the Nike sweaters. You go and visit your local shopping mall and find out that there are two possible kiosk locations that you can rent for July and August. The first Kiosk rents for $500 per week and is located at the far end of the mall behind the food court. You note that there is not much shopper traffic in this area as most shoppers just grab something to eat and return to the main mall. The second Kiosk rents for $1000 per week and is located right in the middle of the mall, in front of a store that sells Nike sweaters. Both locations have additional utility costs of $250 per week.

You are going to hire a sales associate to run the Kiosk since you would rather be doing other things during the summer. You calculate that this helper will work 35 hours per week. The going rate for sales associates in the mall is $10 per hour and 10% commission of the sales they make. You notice that there are several stores in the mall with “sales help wanted” signs.

Answer the following questions:

Which Kiosk would you rent? Give at least 2 reasons for your choice. (2 marks)

Determine all the fixed costs. These are the costs/expenses that remain the same irrespective of how much you sell. 6000 (3 marks)

How much would you pay your employee? Give at least 2 reasons for your choice. (2 marks)

What is the relationship between selling price and demand for the sweaters? (1 mark)

What else, other than price affects the demand for the sweaters? Indicate at least 2 different strategies that you can try, to increase the demand of your sweater. (2 marks)

Establish a selling price. Give at least 2 reasons for your choice. (2 marks)

What are your variable costs (expenses that are directly related to how much you sell – the more you sell the higher they are)? (2 marks)

Based on your selling price, what is your profit per sweater sold (how much do you actually make for every sweater sold)? (2 marks)

Determine how many sweaters you have to sell (your BEP) before you actually start making money (to cover all your fixed and variable costs)? (2 marks)

You have a raging shoe collection addiction that you anticipate will cost you $6,000 for the summer. How many sweaters are you going to have to sell to make sure that you make enough profit so that you can continue buying up all the shoes you want over the summer? (2 marks)