1. Linda has started her own company, Linda Shirts, which manufactures imprinted

Question

1. Linda has started her own company, Linda Shirts, which manufactures imprinted shirts for special occasions. Since she has just begun this operation, she rents the equipment from a local printing shop when necessary. The cost of using the equipment is $720. The materials used in one shirt cost $10, and Linda can sell these for $18 each.

a) If Linda sells 50 shirts, what will her total revenue be? _______

b) If Linda sells 50 shirts, what will her total variable cost be? _______

c) How many shirts must Linda sell to break even? ________

d) What is the total revenue for this (i.e., break even)? ________

Explanation / Answer

(a) Selling price of one shirt = $18

Linda sells 50 shirts, Her total revenue = Number of shirts sold x Selling price of one shirt = 50 x 18 = $900

(b) The materials used in one shirt cost $10;

Variable cost for one shirt = $10

Linda sells 50 shirts, total varaible cost = Number of shirts sold x Variable cost for one shirt = 50 x 10 = $500

(c)

Let X : number of shirts that Linda must sell to break even

Fixed cost : The cost of using the equipment is $720

Variable cost : Material cost for one shirt = $10

Total cost of X shirts = fixed cost + X x Varaible cost = 720 + 10X

Linda can sell these for $18 each

Total revenue for X shirts =Number of shirts sold x Selling price of one shirt = 18X

For break even;

Total revenue for X shirts - Total cost of X shirts = 0

18X - 720 - 10X = 0

8X = 720

X= 90

Therefore; Lind must sell 90 shirts to break even

d) Total revenue for this (i.e break even)

Revenue = Number of shirts sold x Selling price of one shirt = 90 x 18 = 1620

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