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Equations for Cost and Profit

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A small retail store owner has calculated the monthly over head costs at $1,000, and additional operating costs are estimated at $0.12 per dollar of sales. Based on this data the owner has decided to mark-up all items 45% on retail for the coming year.

1. At what annual dollar volume of sales will the store break even?
2. What will be the net profit before taxes on yearly sales of $80,000?

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Solution Summary

The expert examines equations for cost and profits. The annual dollar volume of sales of the stores break even is determined. The net profit before taxes on yearly sales is determined.

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The costs of running the store are $1000 per month (so $12,000 per year) and $0.12 for every dollar of sales. Let's call the annual dollar amount of sales "x". The equation describing the costs of running the store for a year is:

cost = 12000 + 0.12x

Because the owner is marking up all items 45%, ...

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