The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hoope

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 $16.00 each with a minimum order of 360 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 $32.00 each. Hooper would pay the students a commission of $7.00 for each shirt sold.

To make the project worthwhile, Hooper would require a $7,650 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? (Round your intermediate calculations to 2 decimal places.)

     

Assume that the venture is undertaken and an order is placed for 360 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.)

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.

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 $16.00 each with a minimum order of 360 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 $32.00 each. Hooper would pay the students a commission of $7.00 for each shirt Required 1. To make the project worthwhile, Hooper would require a $7,650 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? (Round your intermediate calculations to 2 decimal places.) Sales level in units sweatshirts Sales level in dollars 2. Assume that the venture is undertaken and an order is placed for 360 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.) Break even point in units Break even point in sales dollars sweatshirts

Explanation / Answer

Question 1:

Required Profit = $7,650

Selling Price per Shirt = $32

Cost per Shirt = $16

Commission per Shirt = $7

Contribution Margin per Shirt = Selling Price - Cost - Commission = 32 - 16 - 7 - $9

Required Sales = 7650/9 = 850 Shirts.

Required Dollar Sales = 850 * 32 = $27,200

Question 2

The Order has already been placed and hence there is a fixed cost involved 360*16 = $5,760

Now the variable cost per unit is only the commission of $7 per unit and hence the contribution margin is $32- $7 = $25

Hence the Breakeven point would be 5760/25 = 230 Units

The Breakeven Sales in dollars would be = $7,373

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