Problem 5-24 Break-Even and Target Profit Analysis [LO5-5, LO5-6] The Shirt Work
ID: 2541895 • Letter: P
Question
Problem 5-24 Break-Even and Target Profit Analysis [LO5-5, LO5-6] 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 $15.00 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 $30.00 each. Hooper would pay the students a commission of $6.00 for each shirt sold. Required 1. What level of unit sales and dollar sales is needed to attain a target profit of $8,550? 2. Assume that Hooper places an initial order for 360 sweatshirts. What is his break-even point in unit sales and dollar sales? (Round es your intermediate calculetions and final answers to the nearest whole number.) the target profitExplanation / Answer
1-
selling price
30
less cost
15
less commission
6
contribution margin
9
Break even point to attain the target profit of 8550
(target profit+ fixed cost)/contribution margin per unit
(8550+0)/9
Break even point in units
950
Break even point in sales
no of units in break even*selling price per unit
950*30
Break even point in sales
28500
2-
Break even point in unit
because there is no fixed cost involved. Only the variable cost of (15+6) = 21 would be required to quantity demanded would be only the break even point in Units
360
Break even point in unit sales (dollars)
360*30
10800
1-
selling price
30
less cost
15
less commission
6
contribution margin
9
Break even point to attain the target profit of 8550
(target profit+ fixed cost)/contribution margin per unit
(8550+0)/9
Break even point in units
950
Break even point in sales
no of units in break even*selling price per unit
950*30
Break even point in sales
28500
2-
Break even point in unit
because there is no fixed cost involved. Only the variable cost of (15+6) = 21 would be required to quantity demanded would be only the break even point in Units
360
Break even point in unit sales (dollars)
360*30
10800