Violet has worked with a supplier who will produce shirts and sell for $7 each. Shirts...
Violet has worked with a supplier who will produce shirts and sell for $7 each. Shirts are currently produced in-house with fixed costs of $39,000, material cost per unit of $6, and $1.75 of labor/conversion cost. What is the volume required to make purchasing the shirts a good financial idea?
Homework Answers
Given that,
Buy price = $7 per Shirt
Fixed cost = $39,000
Material cost = $6 per Shirt
Labor cost = $1.75 per Shirt
Let number of units produced in house = P
Total cost = Fixed cost + Variable cost per Shirt x Number of units produced
= 39,000 + 6P + 1.75P
= 39,000 + 7.75P
The total cost of Purchasing P shirts = 7P
Under Breakeven, Total revenue = Total cost
Purchasing the shirts from the supplier is a good idea for any volume of shirts as the total cost while purchasing is less than total cost while manufacturing in house.
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