Question

The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring high school students, on a commission basis, to sell sweatshirts bearing the name and mascot of the local high school. These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they could not be returned because of the unique printing required. The sweatshirts would cost Hooper $18.00 each with a minimum order of 360 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50. Since Hooper's plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be $36.00 each. Hooper would pay the students a commission of $5.00 for each shirt sold. Required: 1. What level of unit sales and dollar sales is needed to attain a target profit of $7,800? 2. Assume that Hooper places an initial order for 360 sweatshirts. What is his break-even point in unit sales and dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.) 1. sweatshirts Unit sales needed to attain the target profit Dollar sales needed to attain the target profit Break-even point in unit sales Break-even point in dollar sales sweatshirts

Answer 1

1	Units sales needed to attain target profit	600	sweatshirts
	($7,800/$13.00)
	Dollar sales needed to attain target profit	$21,600
	(600 x $36.00)
	Working
	Selling price	$36.00
	Variable expenses:
	Purchase cost of the sweatshirts	$18.00
	Commission to the student	$5.00
	Contribution margin	$13.00
	Note: Since there are no fixed costs, the number of unit sales needed to yield the desired $7,800
	in profits can be obtained by dividing the target $7,800 profit by the unit contribution margin
2	Break-even Point in units Sales	209	units
	(360 x $18)/($36 - $5)
	Break-even Point in dollar Sales	$7,524
	(209 x $36)