Question

In: Accounting

The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner,...

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 $22.00 each with a minimum order of 238 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 238.

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 $44.00 each. Hooper would pay the students a commission of $8.00 for each shirt sold.

Required:

1. What level of unit sales and dollar sales is needed to attain a target profit of $13,328?

2. Assume that Hooper places an initial order for 238 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.)

3. How many sweatshirts would Hooper need to sell to earn a target profit of $15,000? (Round your final answer to the nearest whole number.)

Solutions

Expert Solution

1 Unit sales needed to attain target profit
         = Target Profit / ( Sale price (-) Variable Cost (-) Commision)
         =    $ 13,328 / ( $ 44 (-) $ 22 (-) $ 8 )
         =   $ 13,328 / $ 14		 952 sweatshirts
Dollar sales needed to attain target profit
               = Unit sales needed to attain target profit x Sale price
               =   952 Units x $ 44		 $ 41,888
2 Break-even point in unit sales
         = Initial Order x Cost / ( Sale price (-) Commision )
         = ( 238 x $ 22 ) / ( $ 44 (-) 8 )
         =    $ 5,236 / $ 36		 145 sweatshirts
Break-even point in dollar sales
             = Break-even point in unit sales x Sale price
              = 145 x $ 44		 $ 6,380
3 Number of sweatshirts
         = Target Profit / ( Sale price (-) Variable Cost (-) Commision)
         =    $ 15,000 / ( $ 44 (-) $ 22 (-) $ 8 )
         =   $ 15,000 / $ 14		 1,071 sweatshirts

ekkarill92 answered 2 years ago
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