Question

Hoodys for Good manufactures and sells hooded sweatshirts. The company locates its manufacturing facilities in areas with high unemployment rates and provides on-site day care and education for its employees’ children. The company recently started a “one for one” program where they donate one sweatshirt for every one sold to an international charity to provide to a child in need. The customer pays the shipping cost for items purchased, but the company pays to ship to the international charities.

Cost information is summarized below:

Variable Costs
Direct Materials	$4.00 per unit produced
Direct Labor	$3.50 per unit produced
Variable Manufacturing Overhead	$0.60 per unit produced
Shipping	$4.00 per unit donated
Fixed Costs
Salaries	$30,000 per month
Advertising	$60,600 per month
Production Equipment	$50,000 per month

Required:

Answer each of the following independent questions.

1. Assume that the price of each sweatshirt sold is $35.

a. How much contribution margin is earned on each unit sold to a paying customer?

b. How much contribution margin is lost on each unit donated to charity?

c. If one sweatshirt is donated for each one sold, what is the weighted-average contribution margin per unit produced?

d. How many total units must be produced to break even? How many must be sold and how many donated?

2. If the company expects to sell 5,500 sweatshirts and donate 5,500 sweatshirts per month, what price must be charged to earn a target profit of $23,300 per month?

3. Assume that Hoodys for Good's managers are trying to decide whether to set the price at $45 or $65. If the price is set at $45, they think they can sell 11,000 units (and donate 11,000 units). If the price is set at $65, they only expect to be able to sell (and donate) 6,500 units.

a. If the company’s goal is to maximize economic profit, what price should they charge?

b. If the company’s goal is to do the most social good, what price should they charge?

Answer 1

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