Question

LLZ Company manufactures and sells t-shirts imprinted with college nanes and slogans. Last year the shirts sold for $14.00 each, and the variable costs to manufacture then totaled $6.75 per t-shirt. Last year the company needed to sell 25,000 t-shirts to break-even. LLZ's expectations for the coming year include the following: 1. the selling price of the t-shirts will increase by 25% 2 the variable costs to manufacture the t-shirts will increase by one-third 3. the fixed costs will increase by 18% Calculote the number of t-shirts LLZ Company needs to sell in the coming year in order to earn a net incone equal to 32% of sales.

Answer 1

Answer:

Breakevn units = Fixed cost / (Selling price - Variable cost)

25000 = Fixed cost / ( 14 - 6.75 )

Fixed cost = 25000 x 7.25 = 181250

Coming Year:

New selling price = 14 x 1.25 = 17.50

New Variable cost = 6.75 + 6.75 x 1/3 = 9

New Fixed Cost = 181250 x 1.10 = 199375

Target sales in Units = (Fixed cost + desired net income ) / (Selling price - Variable cost)

X = (199375 + (17.50 X x 0.32) / ( 17.50 - 9 )

X = ( 199375 + 5.60X) / 8.50

199375 = 8.50 X - 5.60 X

2.90 X = 199375

X = 68750 Tshirts