The Shirt Works sells a variety of tee shirts and sweatshirts. Steve Hooper, the owner, is...
Question:
The Shirt Works sells a 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 $17.00 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 $34.00 each. Hooper would pay the students a commission of $7.00 for each shirt sold.
Required:
1. What level of unit sales and dollar sales is needed to attain a target profit of $9,000?
2. Assume that Hooper places an initial order for 360 sweatshirts. What is his break-even point in unit sales and dollar sales?
Target-Profit & Break-Even Point:
The break-even point is defined as the sales point at which net income is zero. Target profit is the profit goal that a company has. The sales units to attain both points are calculated in break-even analysis.
Answer and Explanation: 1
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1.) Target Profit sales units = Target Profit + Fixed Cost / Contribution Margin per unit
= $9,000 + $0 / ($34 - $17 - $7)
=156 units
Target...
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Target-Profit & Break-Even Analysis
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Chapter 3 / Lesson 5
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Total costs are compared to total revenue and are either lower (profit), higher (loss), or equal (break-even point). Learn to calculate this and identify target profit, as well as establish a margin of safety to accommodate unanticipated risks.
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