Amy has started her own company, Amy Shirts, which makes Custom Embroidered Logo

Question

Amy has started her own company, Amy Shirts, which makes Custom Embroidered Logo polo shirts for special orders. Since she has just begun this operation, she rents the equipment from a local shop when necessary. The cost of using the equipment is $630. The materials used in one shirt cost $10, while the labor cost is $6 per shirt. Amy can sell these shirts for $25 each.

1.) How many shirts must Amy sell to break even?

2.) What is the total revenue for breaking even?

3.) How many shirts must Amy sell to make a profit of $225?

4.) What is the total revenue for making a profit of $225?

Explanation / Answer

Given, Fixed cost, FC = $630

Revenue, R = $25 per shirt

V = variable cost per unit = material cost + labor cost = $10+$6 = $16

1.Break-even point, QBEP = FC/(R-v)

Hence QBEP = 630/ (25-16) = 70 units

2. Total revenue for breaking even= Rx QBEP = 25 x 70 = $1750

3. Q needed to generate specified profit = (P+FC)/(R-v)

Given Profit, P = $225

Hence Q = (225 + 630)/ (25-16) = 95 units

4. Total revenue for making $225 profit = Q x R = 95 x 25 = $2375

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