Check my work The Shirt Works sells a large variety of tee shirts and sweatshirt

Question

Check my work 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 $16.00 each with a minimum order of 280 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 $32.00 each. Hooper would pay the students a commission of $7.00 for each shirt sold Required: 1. What level of unit sales and dollar sales is needed to attain a target profit of $7,650? 2. Assume that Hooper places an initial order for 280 sweatshirts. What is his break-even point in unit sales and dollar sales? (Round your intermediate calculations and final answers to the nearest whole number.) 1. Unit sales needed to attain the target profit sweatshirts Dollar sales needed to attain the target profit Break-even point in unit sales Break-even point in dollar sales 2. sweatshirts

Explanation / Answer

Solution 1:

Selling Price = $32

Cost of sweat shirt = $16

Sale Commission = $7

Contribution margin per Sweat Shirt = Selling Price - Variable Expenses= $32 - $16 - $7 = $9

Unit Sales needed to attain the Target Profit = Target Profit / Contribution Margin per unit = $7650 /9= 850 Units

Dollar Sales needed to attain the target Profit = Unit sales * Selling Price = 850 * $32 = $27200

Solution 2:

Since Order has been placed for 280 units, associated Purchased cost which cannot be returned = units * purchase price = 280 * 16 = $4480

sales commission = $7

selling price = $32

Now sales commission will be variable cost.

Therefore Contribution margin = Selling price - sales commission = $32- $7 = $25

Now, Break-even point in unit sales = Purchase cost / Contribution margin per unit = $4480 / 25 = 179 units

Brek-even point in dollar sales = Break even units * selling Price = 179 * $32 =$5728

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