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 $19.00 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 $38.00 each. Hooper would pay the students a commission of $5.00 for each shirt sold.

1.)

To make the project worthwhile, Hooper would require a $14,000 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 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.)

Break even points in units:________ Sweatshirts.

Break even points in saled dollars:________

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.

Explanation / Answer

1) Net Sale Price per unit = $38 - $5

.........................................= $33

Contribution per unit = $33 - $19

..................................= $14

Desired Profit = $14,000

Break even sales level in units = $14,000 / $14

..................................................= 1,000 units

Break even sales level in dollars = 1,000 units x $38

.....................................................= $38,000

2.) Fixed Cost = $19 x 280

.......................= $5,320

Variable cost per unit = $5

Break even sales level in units = $5,320 / $5

.................................................= 1,064 units

Break even sales level in dollars = 1,064 units x $38

.....................................................= $40,432

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