The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hoope

Question

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 $21.00 each with a minimum order of 360 sweatshirts. Any additional sweatshirts would have to be ordered in increments of 50. 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 $42.00 each. Hooper would pay the students a commission of $7.00 for each shirt sold. Required: 1. To make the project worthwhile, Hooper would require a $9,100 profit for the first three months of the venture. What level of unit sales and dollar sales would be required to reach this target net operating income? (Round your intermediate calculations to 2 decimal places.)

      
Sales level in units       sweatshirts
Sales level in dollars

Assume that the venture is undertaken and an order is placed for 360 sweatshirts. What would be Hooper’s break-even point in unit sales and in dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.

      
Sales level in units       sweatshirts
Sales level in dollars

Explanation / Answer

a) Sale price 42 Variable cost Purchase cost 21 Sale commision 7 Contribution ( Sale - Variable cost) 14 Expected profit 9100 Expected sale units = Expected profit / Contribution per unit as per unit gives contribution of 14 we will need = = 9100 / 14 650 units Sales level in units = 650 units Sales level in Dollar = 27300 = 650 units x $ 42 b) Cost of ordering 360 units = 360 x 21 , = 7560 considering cost of ordering be fixed cost Only sales commision will be variable Contribution in this case will be = 42 - 7 , =35 Breakeven point = Cost of ordering / revised Contribution = 7560 / 35 = 216 units In sale Value = 216 units x 42 , =9072 Reconcilling Sale = 216 units x 42 , 9072 Less Variable = 216 x 7 1512 Contribution 7560 Less minimum cost of ordering 7560 Net income NIL

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