Maple Tree Accessory Shop - Case Study Analysis
1. Should Ivan have accepted his friend's free design offer?
While a free design offer appears cost-effective initially (saving RMB 4,000), the opportunity cost proved
significant. The delay of nearly a month in receiving the design postponed the store's opening, causing lost
sales days. Given fixed costs such as rent (RMB 3,300/month) and utilities, each day of delay reduced
profitability. From an operations standpoint, a professional designer would have delivered faster, allowing
earlier revenue generation. Thus, the acceptance of the free design was a strategic misstep, prioritizing cost
savings over time-to-market.
2. If the shop continues as it is, what is the profit/loss after 2 years (720 business days)?
At the current average daily sales of RMB 600, with a 50% gross profit margin, the gross profit per day is
RMB 300.00. Over 720 business days, total gross profit amounts to RMB 216000.00. Fixed monthly costs
include rent (RMB 3,300), utilities (RMB 150), full-time salary (RMB 2,000), part-time wages (RMB 2400), and
sales commissions (RMB 540.00 monthly). Over two years, total operating costs sum to approximately RMB
201360.00. Comparing total gross profit and operating expenses, the shop would incur an estimated net loss
of RMB 27600.00 after two years if conditions remain unchanged.
3. Should Ivan decide to accept Chan's advice to lower prices by 20%?
Lowering prices by 20% could potentially increase sales volume by attracting price-sensitive students,
particularly given the competition from nearby street stalls offering 20-40% lower prices. However, a 20%
price cut would reduce the gross profit margin from 50% to 30% (assuming purchase costs remain constant).
For this strategy to be viable, sales volume would need to increase by at least 67% to maintain current gross
profit levels. Without strong evidence of such a demand surge, the price cut risks lowering overall profitability.
4. Would it be a wise choice for Ivan to shut down in the short run?
In the short run, a shutdown decision should consider whether the shop covers its variable costs. With daily
sales of RMB 600, gross profit is RMB 300/day after purchase costs, but variable costs such as commissions
and part-time wages (~RMB 100/day) are still covered, leaving a contribution margin towards fixed costs.
Since the contribution margin is positive, continuing operations reduces fixed-cost burden compared to
closure, making it economically rational to remain open in the short run.
5. To break-even, what daily revenue should be achieved on average in 2 years of operation?
Over two years, fixed operating costs total approximately RMB 188400.00. Given a 50% gross profit margin
and a 3% commission on sales, the break-even point is achieved at around RMB 556.74 in daily sales. This
is significantly above the current average of RMB 600, indicating that substantial revenue growth is needed.
6. Would it be a wise choice for Ivan to resume his part-time job as a software engineer?
Resuming the part-time software engineering role, which offers RMB 200/hour with high flexibility, presents a
strong opportunity cost consideration. Even working 10 hours/week would yield RMB 2,000/month with
minimal overhead and time investment, exceeding current shop profits (which are negative). Given the
current underperformance of the shop and the strain on work-life balance, resuming the part-time role
Maple Tree Accessory Shop - Case Study Analysis
appears to be a financially and personally advantageous decision.
