Chloe is an online seller who wanted to open an actual store.

The average price

of the products that she buys from her supplier is P380 per canvas tote bag with
inclusions. Since her starting capital is not enough to open a big store, she decided to
look for a small space that has a cheap monthly rent costing P2,999 and with a total of
P1,799 for the utilities expense. Considering that her store is small, she hired 1
employee to assist her for store needs with a salary of P500/week.
To make sure that she will have enough revenue to sustain her business, she
decided to sell the canvas tote bag for P800.
Upon selling, she noticed that the demand for the canvas tote bag increased by
P25%, so, she decided to sell more units of that product.

Additional Information:
 Initially, the expected demand (QD1) of the tote bags was 200 units.
 The price decreased to P750 (P2).

Selling price P800/unit

Monthly fixed costs:
Rent expense P2,999
Salaries expense P500/week P2,000
Utilities expense P1,799
Total Monthly fixed costs P6,798
Variable costs:
Direct materials P380/unit

a. % Markup based on variable cost

Selling price: P800
Units produced: 200
Fixed cost/unit: P34
Variable costs: P380

P800-P380
P380

= 110.53%

b. % Markup based on selling price

Variable costing method

P800-380
P800

= 52.50%
Full costing method
P800-P380-P34
P800

= 48.25%

c. Price Elasticity of Demand

Q1: 200
Q2: 200*1.25 = 250
P1: 800
P2: 750

% Change in quantity demanded

= 250-200 = 50
= 50/200 = 25%

% Change in price
= 750-800 = -50
= -50/800 = -6.25%

Price elasticity of demand = 25%/-6.25% = -4 or 4.

d. Breakeven in Pesos

P6,798 fixed cost

P800 selling price – P380 variable cost

= 16.1857 or 16 units
= 16.1857*800 = P12,948.56

e. Breakeven in Units
P6,798 fixed cost
P800 selling price – P380 variable cost

= 16.1857 or 16 units