Bracelets, Break-Even, and the Parent Offer
A team of four students plans to sell handmade friendship bracelets at the spring family night. They buy a $20 kit that makes 40 bracelets, pay a $10 booth fee, and spend $6 on a sign. Packaging costs $0.25 per bracelet. They plan to charge $2.50 each. They borrowed $10 from the class fund to help buy the kit and must repay it from profits. Before the event, a parent offers to buy 12 bracelets at $1.75 each for a birthday party, delivered early. The team also expects to sell 22 bracelets at the event if the weather is good, but the forecast is uncertain. After the event, 6 bracelets remain. One member wants to drop the price to $1 for the leftovers; another wants to save them for a future sale. The team must report profit and decide what to do.
1. Calculate the break-even number of bracelets at $2.50. Show the contribution per bracelet and explain what the number means before the event.
Read the worked answer
Fixed costs are $20 kit + $10 booth + $6 sign = $36. Each bracelet sold at $2.50 has $0.25 packaging, so contribution is $2.25. Break-even before the loan is $36 / $2.25 = 16 bracelets. That means the first 16 sales only cover fixed costs; no profit exists until sale 17. The $10 class-fund repayment is not an operating cost, but it must come from profit. To repay it, the team needs another $10 / $2.25 = 4.44, so 5 more bracelets, for 21 total. If the team sells fewer than 16, it loses money even before repaying the loan. This number is useful before the event because it sets a minimum sales target; 22 expected sales would meet it with only one bracelet of cushion, so the parent offer becomes a risk-reduction tool.
2. Evaluate the parent's offer at $1.75. Should the team accept it before the event? Use contribution margin and risk in your answer.
Read the worked answer
The parent price gives contribution of $1.75 - $0.25 = $1.50 per bracelet, or $18 for 12. At the event price, those 12 would contribute $27 if sold, so the parent offer gives up $9 of potential contribution. But the team has 40 bracelets and expects to sell only 22 at the event. If that forecast is right, accepting the parent offer still leaves 28 bracelets, enough for 22 event sales plus 6 leftovers. The 12 parent bracelets would otherwise likely be leftovers. Accept if the team believes event demand is 28 or fewer; reject or negotiate only if it has strong evidence demand will exceed 28. A reasonable decision rule: accept the offer, but confirm the parent will pick up early and pay on delivery. This locks in $18 and reduces the risk of unsold stock.
3. The six leftover bracelets: compare discounting to $1 with saving them, and calculate final profit under your recommendation. Consider that a future sale may require another booth fee.
Read the worked answer
At $1, contribution is $0.75 per bracelet, so all six would add $4.50 if a buyer appears. Saving them has storage risk and no guaranteed buyer. A future booth fee of $10 would require $10 / $0.75 = 13.3, or 14 bracelets, just to cover the fee, and six cannot do that. So discounting is better than paying another booth fee for this small batch. Recommend selling the six at $1 only if a buyer is present; otherwise donate or save them without paying a new fee. With the parent offer accepted and 22 event sales, profit before loan is $21 + $55 - $8.50 packaging - $36 fixed = $31.50. After repaying $10, profit is $21.50. If all six leftovers sell at $1, final profit is $26.00.