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 $24.00 each with a minimum order of 320 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 $48.00 each. Hooper would pay the students a commission of $7.00 for each shirt sold. Required: 1. What level of unit sales and dollar sales is needed to attain a target profit of $14,450? 2. Assume that Hooper places an initial order for 320 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 in the target proft Break-even point in unit Sales Break-even point in dollar sales 2

Answer 1

Unit sales for target profit = (Target profit + Fixed costs)/(Unit selling price – unit variable costs)

= 14,450/(48-24-7)

= 850 sweatshirts

Order required because of denomination = 870 sweatshirts

Hence, break even units = (14,450 + 870*24)/(48-7)

= 861.71 sweatshirts

i.e. 862 units

Dollar Sales required = 862*48 = $41,376

2.Unit Sales = 320*24/41

= 187.32 shirts

i.e. 187 sweatshirts

Dollar Sales = 187*48 = $8,976