Red Wolf Dyers and Printers, Inc. buy a new printing range for producing sweatsh

Question

Red Wolf Dyers and Printers, Inc. buy a new printing range for producing sweatshirt for NC State Alumni members. The machine costs $160,000.00 and will depreciate over four (4) years. Producing the sweatshirts (or perspiration shirts, as some call them) causes annual fixed costs in addition to the annual depreciation of $10,000.00, and the variable costs are 60% of the selling price. The shirts sell for $25.00 each. What is the break-even quantity for this product, i.e., at what production level do Red Wolf Dyers and Printers start to make a profit on the sweatshirt? Select one: O a. 3,333 sweatshirts O b. 6,400 sweatshirts O c. 5,000 sweatshirts O d. 16,000 sweatshirts e, 2,000 sweatshirts

Explanation / Answer

BEP ( units ) = Fixed costs / CM per unit

Fixed costs = $ 10000 + Annual Dep. ( 160000 / 4 ) = $ 50000

CM per unit = SP - VC = 25 - ( 25 * 60 % ) = $ 10

BEP ( units ) = 50000 / 10

5000 sweatshirts

Option C is correct.

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