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 240 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 $4.00 for each shirt sold Required 1. What level of unit sales and dollar sales is needed to attain a target profit of $10,800? 2. Assume that Hooper places an initial order for 240 sweatshirts. What is his break-even point in unit sales and dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.) 1. Unit sales needed to attain the target profit sweatshirts Dollar sales needed to attain the target profit 2. Break-even point in unit sales sweatshirts Break-even point in dollar sales

Explanation / Answer

1)

Contribution = Sales price - Variable costs

Sale price per unit = $32

Variable costs = Cost per shirt + commissions to students

=$16 +$4 = $20

Therefore contribution = $12

Break even Point = (Fixed costs +desired profit)/Contribution

Unit sales needed =10,800/12 = 900 units

Dollar Sales needed to attain given target = 900 x $32 =$28,800

2) If order is placed for 240 sweatshirts, the cost of shirts shall be treated as fixed costs.

Contribution = $32 - $4 =$28

Breakeven Point = Fixed cost / contribution

=$3,848/28 = 137.4 =137 units (rounded off)

Breakeven point in $ = 137 x 32 = $4,384

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