Breakeven Analysis EASY Question. Only answer parts d) and e) Judy buys a machin

Question

Breakeven Analysis EASY Question.

Only answer parts d) and e)

Judy buys a machine for printing slogans on T-shirts. The machine costs $1000. She buys white T-shirts from an overseas supplier at $3 each (incl. freight). Judy estimates that other materials cost $1.20 and her time is worth $1.50 for every T-shirt she prints. She sells the printed shirts for $12 each. a) What is the prime cost of producing the printed T-shirts? b) How should Judy account for the cost of the printing machine when determining the total cost of producing printed shirts? c) How many shirts must she sell to break-even? Solve the problem algebraically and graphically. Judy now decides that she would rather pay a student to do the T-shirt printing on her equipment and she will concentrate on the buying of materials and supplying of printed shirts to retailers. She must cover the above costs (she will pay the student at the piece-rate of $1.50), and would like to make a profit of 15% on sales. Judy's time spent buying and selling is now part of overheads to be covered by the 'profit'. d) How many extra T-shirts will Judy have to sell in order to meet her objective? e) What complication would paying tax add to this problem (you can assume a personal tax-rate of 42% and a company tax-rate of 33%)?

Explanation / Answer

1 Prime cost of Producing T Shirt Direct material cost 3 Other Material 1.2 Direct wages 1.5 5.7 2 Selling price 12 Contribution 6.3 Fixed cost 1000 No of T shirts to be printed 159 3 If it decides to take other consultant work Material cost 3 Other cost 1.5 4.5 Add: Profit           0.79 Sales           5.29 No of units to be sold =1000/5.29 189

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