Question

The Shirt Works sell a large variety of tee shirts and sweat shirts. Steve Hooper, the owner, is thinking of expanding his sales by hiring high school students , on a commission sales 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 $8 each with a minimum order of 75 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 75.

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 cost of the sales commissions. The selling price of the sweatshirts would be $13.50 each. Hooper would pay the students a commission of $1.50 for each t shirt sold.

Required:

1: What level of unit sales and dollar sales is needed to attain a target profit of $1,200?

2: Assume Hooper places an initial order of 75 sweatshirts. What is his break even point in unit sales and dollar sales?

Answer 1

	Sale Price	$13.50
	Less: cost	$8.00
	Less: Sale commission	$1.50
	Contribution	$4.00
1	Target Profit	$1,200.00
	Fixed Cost	0
	Unit Sale Needed to attain Profit	1200 / 4
	Units	300
	In Dollars 300 units * $13.5	$4,050.00
2	Total Cost of 75 shirts	75*8 = $600
	Contribution	13.5 - commission 1.5
	contributes towards recovering purchase cost	$12.00
	BEP =	600 / 12
	BEP Units	50
	BEP Sale =	50*13.50
		$675.00
		Per Unit	50Units
	Sale Price	$13.50	675
	Less: cost	$8.00	400
	Less: Sale commission	$1.50	75
	Contribution	$4.00	200
	Total Cost recovered by variable cost 400 and contribution 200