Question

Aloha Clothing Company is working on a line of T-Shirts. These are their costs for the month of March; manufacturing plant manager’s salaries $23,000, manufacturing plan lease payment $10,000, worker’s compensation insurance monthly premium $2,000, hourly wages per unit $3, machinery repair per unit $5 and packing per unit $7. The selling price for each T-Shirt is $50. (33 points) (show work)

a. What are the total fixed costs and variable costs per unit for the month of March? (5 points)

b. How many T-Shirts does Aloha need to sell to break-even? (5 points)

c. How many T-Shirts does Aloha need to sell to have an operating income of $35,000? (5 points)

d. What is the contribution rate per unit? (6 points)

e. What is Aloha’s total cost per T-Shirt if they sell 1,200 T-Shirts and what is their operating income? (6 points)

f. What is Aloha’s total cost per T-Shirt if they sell 3,000 T-Shirts and what is their operating income? (6 points)

Answer 1

A.TOTAL FIXED COSTS;-

manufacturing plant manager’s salary- $23,000

manufacturing plant lease payment-$10000

worker’s compensation insurance monthly premium-$2,000

total fixed cost for march=$35000

TOTAL VARIABLE COSTS PER UNITS:-

hourly wages per unit-$3

machinery repair per unit-$5

packing per unit-$7

TOTAL VARIABLECOST PER UNIT=$15

B.break even point in units=fixed cost/contribution per unit=$35000/$35=1000 t shirts

contribution per unit=selling price-variable cost per unit=$50-$15=$35.

C.inorder to get operating profit of $35000,let assume that x number of t shirts to be sold,then

PARTICULARS		AMOUNT($)
sales	x*50	50
less:variable cost	x*15	15x
contribution		35x
less:fixed costs		35000
operating income		35000

we know that contribution-fixed costs=operating income,hence fromn the above table

35x-$35000=$35000 and 35x=$70000 and x=$70000/35=2000 t shirts should sell.

D.contribution per unit=selling price per unit-variable cost per unit=$50-$15=$35.

E.Total cost to produce 1200 t shirts =fixed costs+1200 t shirts x variable cost per t shirts

$35000+1200x$15=$53000

hence cost per t shirt=$53000/1200=$44.20

oprating income if sold 1200 t shirts is,

PARTICULARS		AMOUNT($)
sales	1200x$50	60000
less:variable cost	15x1200	18000
contribution		42000
less:fixed costs		35000
operating income		7000

F.

Total cost to produce 3000 t shirts =fixed costs+3000 t shirts x variable cost per t shirts

$35000+3000x$15=$80000

hence cost per t shirt=$80000/3000=$26.67

oprating income if sold 3000 t shirts is,

PARTICULARS		AMOUNT($)
sales	3000X50	150000
less:variable cost	15X3000	45000
contribution		105000
less:fixed costs		35000
operating income		70000