The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hoope
ID: 2517148 • Letter: T
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 $17.00 each with a minimum order of 280 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50.
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 $34.00 each. Hooper would pay the students a commission of $5.00 for each shirt sold.
Required:
1. To make the project worthwhile, Hooper would require a $10,200 profit for the first three months of the venture. What level of unit sales and dollar sales would be required to reach this target net operating income? (Do not round intermediate calculations.)
2. Assume that the venture is undertaken and an order is placed for 280 sweatshirts. What would be Hooper’s break-even point in unit sales and in dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.)
Sales level in units ___ sweatshirts Sales level in dollarsExplanation / Answer
sale price for 280 shirts @ 34$ = 9520
less:- varible cost
280 shirts for $17= 4760
280 shirts for $5 = 1400
contribution per 280 shirts. ---------------- 3360
contribution per unit 12
no. of pairs of shirts to be sold to earn target profit
= ( target price + fixed cost) ÷ contribution margin per unit
= 10200+0)÷ 12
= 850 units of sweatshirts
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