Question

Bell Entertainment sells souvenir T-shirts at each rock concert that it sponsors. The shirts cost $7 each. Any excess shirts can be returned to the manufacturer for a full refund of the purchase price. The sales price is $16 per shirt. Required a. What are the total cost of shirts and cost per shirt if sales amount to 2,000, 2,500, 3,000, 3,500, or 4,000? b. Is the cost of T-shirts a fixed or a variable cost? Complete this question by entering your answers in the tabs below. Required A Required B What are the total cost of shirts and cost per shirt if sales amount to 2,000, 2,500, 3,000, 3,500, or 4,000? 2,500 3,000 Number of shirts sold2000 Total cost of shirts 3,500 4,000 Cost per shirt < Required A Required B

Answer 1

1. Total cost of shirt and cost per shirt at different sales level will be as follows :-

Number of shirts sold	2000	2500	3000	3500	4000
Total cost of shirts	$14000	$17500	$21000	$24500	$28000
Cost per shirt	$7	$7	$7	$7	$7

Note :- please note that cost of shirt is variable and variable shirt remains constant on per unit basis and in totality they changes proportionately.

b . Since the total cost of shirts in requirement A changed proportionately to the number of shirts sold, it is a variable cost .

2 .

Requirement a . Breakeven is a situation where company is neither earning profit nor incurring any loss. In the table we can see that situation where profitability is 0 at a point where sales volume is 2000, variable cost is $13 per unit and fixed cost is $30000.

Therefore following is the answer arranged in a table :-

Sales volume	2000	bottles
Variable cost per unit	$13
Fixed cost	$30000

Requirement b.  

Expected profit = $28x4000-$13x4000-$20000 = $40000

Expected profit

$40000

Requirement 3 .

Expected profit after changed circumstances = $28x4000-$11x4000-$30000 = $38000

Therefore comparing to profit in requirement 2, profit in requirement 3 reduced by $40000-$38000 = $2000

Expected profit would

decrease (reduce)

by

$2000