Atrium, a manufacturer of upscale designer tee-shirts, is considering launching
ID: 1193160 • Letter: A
Question
Atrium, a manufacturer of upscale designer tee-shirts, is considering launching an Internet operation to sell its product direct to consumers in addition to distributing through traditional bricks-and-mortar retail stores. Management believes an Internet presence should augment its retail operation. Atrium tee-shirts, made of 100% refined woven cotton, feature batik prints. The cost of producing an Atrium designer tee-shirt is $6.50 per shirt.
Internet: In selling tee-shirts on the Web, the company must hire a Web page architect to design the page and maintain it over the course of a year. The salary for a Web page architect is $60,000, including expenses and benefits. Shipping on Internet orders, which is to be included in the retail price of the tee-shirts, is estimated to be $4.20 per shirt.
Retail store distribution: A retail chain has proposed to carry Atrium tee-shirts for a year in exchange for a 35% dealer margin. Additional in-store promotion and a local print advertising campaign for a year will cost Atrium $80,000.
Based on the above information, answer the following questions. Please Show Your Calculations.
1a. If Atrium can sell 10,000 tee-shirts from its Web page, what’s the break-even price?
1b. If Atrium tee-shirts sell for $32 at the retail stores, how many tee-shirts must Atrium sell to break even?
Explanation / Answer
No of tee-shirts produced = 10,000
Cost of producing one tee-shirt = $6.50
Therefore for 10,000 shirts = $60,500
Salary = $60,000
Advertisement campaign costs = $80,000
Shipping costs @ 4.20 per tee-shirt, for
10,000 pieces = $42,000
35% margin for Retailers (on cost of production) = $60,500 x 0.35 =$ 21,175
Total costs = $2,63,675
So, the break-even price will be = $2,63,675/10,000 = $26.36
No of tee-shirts the company has to sell
at a price of $32 to break-even = 26.36/32 x 10,000 = 8237.50
Say, 8237 tee-shirts the company has to sell to break-even at $32 a piece.
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