BUENAFLOR NOVELTIES, got into the novelties business almost by accident. The owners are talented sculptors, they often made little figurines as gifts for friends.

ACTIVITY 5
BUENAFLOR NOVELTIES, got into the novelties business almost by accident. The owners are talented sculptors, they often made little figurines as gifts for friends. Occasionally, they would set up a booth at a crafts fair and sell a few of the figurines along with jewelry that his partner made. Little by little, demand for the figurines, now called Buenaflor, grew, and the partners began to reproduce some of the favorites in resin, using molds of the originals. The day came when a buyer for a major department store offered them a contract to produce 1,500 figurines of various designs for $10,000. They realized that it was time to get down to business. To make bookkeeping simpler, they had priced all of the figurines at $8.00. Variable operating costs amounted to an average of $6.00 per unit. To produce the order, they would have to rent industrial facilities for a month, which would cost them $4,000.
a. Calculate Buenaflor’s operating breakeven point.
b. Calculate Buenaflor’s EBIT on the department store order.
c. If Buenaflor renegotiates the contract at a price of $10.00 per figurine, what will the
EBIT be?
d. If the store refuses to pay more than $8.00 per unit but is willing to negotiate quantity, what quantity of figurines will result in an EBIT of $4,000?
e. At this time, Buenaflor come in 15 different varieties. Whereas the average variable cost per unit is $6.00, the actual cost varies from unit to unit. What recommendation
would you have for Buenaflor with regard to pricing and/or the numbers and types of units that they offer for sale?