Question

Art Deco is setting up a business called Freak Brothers Sweaters, Inc., (FBSI). Art is estimating the costs for the wool sweaters he is planning on making and selling. There will be two types of sweaters sold, the first called the Freddy model, and the second called the Cat model. The Freddy will require three yards of wool costing $ 21 a yard, and the Cat model will require only two yards but each will cost $ 25 a yard. The production staff will be paid $22 per hour and will spend 4 hours to produce a Freddy, and 2 hours to produce each Cat. The utilities cost to make a sweater of either model will be approximately one half hour of electricity at a cost of $ 10 per hour. The machines used for production are rented for $ 18,000 each month, and the factory building rent is $ 30,000 a month.

The FBSI plant manager, Gilbert, will be paid a salary of $ 96,000 annually to run production, and the office manager Shelton, will be paid $84,000 annually to run the rest of the business matters. Two sales people will be paid $ 4,500 each month to sell the sweaters, sales room rent will be $ 6,000 per month, and there will be a shipping cost of $ 3 per sweater shipped, all sales are shipped by USPS. The selling prices of the models are Freddy for $189 each and Cat for $ 147 each. The planned sales mix will be 40% Freddy model and 60% Cat.

Given this information what would the monthly breakeven sales be in units (total sweaters) sold? What would be the monthly operating income if a total of 3,000 sweaters are sold?

Answer 1

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