The Shirt Works sells a large variety of tee shirts and swea

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 $24.00 each with a minimum order of 200 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 $48.00 each. Hooper would pay the students a commission of $5.00 for each shirt sold. Required 1. What level of unit sales and dollar sales is needed to attain a target profit of $16,150? 2. Assume that Hooper places an initial order for 200 sweatshirts. What is his break-even point in unit sales and dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.) 1. Unit sales needed to attain the target proft sweatshirts Dollar sales needed to attain the target profit 2. Break-even point in unit sales Break-even point in dollar sales

Solution

Solution 1:

Target income = $16,150

Selling price per sweatshirt = $48

Sales commission per sweatshirt = $5

Cost per sweat shirt = $24

Contribution margin per sweatshirt = $48 - $5 - $24 = $19

Units sale neeed to attain target profit = Target profit / contribution margin per unit = $16,150 / $19 = 850 sweatshirts

Dollar sales needed to attain target profit = 850 * $48 = $40,800

Solution 2:

Cost of first 200 shirts ordered = 200 * $24 = $4,800

Contribution margin per sweatshirt excluding cost of sweatshirt = $48 - $5 = $43

Breakeven point in unit sales = Fixed cost / contribution margin per unit = $4,800 / $43 = 112 sweatshirt

Breakeven point in dollar sales = 112 * $48 = $5,376