Chris wants to produce custom T-shirts. To start his company, Chris will have to

Question

Chris wants to produce custom T-shirts. To start his company, Chris will have to buy a machine costing $5,000. The blank t-shirts cost $2.00. The ink for each shirt costs $0.75 per shirt and the other consumables for each shirt cost $0.75. Chris can sell the shirts for $6.00 each.

1. What is Chris’ break-even point for the machine?

2. If Chris produces and sells 175 shirts per week. How many whole weeks will it take to get to the break-even point?

3. What is Chris’ Total Revenue, Total Cost, and Total Profits after 1 year? Total Revenue ________ Total Costs ________ Total Profits ________

4. If Chris finds a new source of shirts and will pay $1.75 per t-shirt, what is the new break-even point?

Explanation / Answer

Answer:- Breakeven point = Fixed cost /(selling price –variable cost per unit)

Fixed cost =$5000

Selling price=$6

Variable cost per unit =$2+$0.75+$0.75=$3.5

So breakeven point = 5000/(6-3.5)=2000 units

Answer:- Total number of weeks = 2000/175=11.43 weeks

Answer:- Total revenue = price *quantity =$6*175*52 =$54600

Total cost = Fixed cost + (variable cost*quantity)*52 = 5000+(3.5*175)*52=$36850

Total Profit = Total revenue - Total cost =$54600 -$36850=$17750

Answer:- When the cost is $1.75 then

Break even point = 5000/(6-1.75)=1176.47 shirts

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