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 $8 each with a minimum order of 75 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 75. 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 $13.50 each. Hooper would pay the students a commission of $1.50 for each shirt sold. Required: 1. What level of unit sales and dollar sales is needed to attain a target profit of $1,200? 2. Assume that Hooper places an initial order for 75 sweatshirts. What is his break-even point in unit sales and dollar sales? 3. How many sweatshirts would Hooper need to sell to earn a target profit of $1,320? 150 sweatshirts 1 Unit sales needed to attain the target profit Dollar sales needed to attain the target profit 2 Break-even point in unit sales Break-even point in dollar sales 3 Number of sweatshirts sweatshirts

Answer 1

1. Let assume number of units sold be X

Therefor,

Target profit = Sales - Total Cost

1200 = (X*13.5) - ((X)*(8+1.5))

X = 300 Units

Dollar Sales = 300 units * $13.5

= $4050

2. Calculation of Break even units = Fixed Cost / Contribution

= (75 units* $8)/($13.5-$1.5)

= $600/$12

= 50 Units.

Break even point in dollars sales = 50 units * $13.5

= $675

3. Let us assume number of units to be sold be X

Therefor,

$1320 = (X*$13.5) - (X*(8 +1.5))

X = 330 Units

Note : As we know we have to order in multiple of 75 So have to order 375 units But We will only consider Variable cost of 330 units and remaining cost 45 units shall be shown as value of closing stock.

1.	Units Sales needed to attain traget profit	300	Sweatshirts
	Dollar Sales needed to attain the target profit	$4050
2	Break-even point in unit sales	50	Sweatshirts
	Break-even point in dollar sales	$675
3	Number of Sweatshirts	330	Sweatshirts

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