# Answered Essay: The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the ow

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 \$15.00 each with a minimum order of 240 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 \$30.00 each. Hooper would pay the students a commission of \$7.00 for each shirt sold. 1. What level of unit sales and dollar sales is needed to attain a target profit of \$6, 400? 2. Assume that Hooper places an initial order for 240 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.)

Solution-

 1. Unit sales needed to attain the target profit 800 sweatshirts Dollar sales needed to attain the target profit \$24,000 2. Break-even point in unit sales 157 sweatshirts Break-even point in dollar sales \$4,710

Calculation of solution-1

Contribution Margin Calculation-

 Selling price \$30 Variable expenses: ​ Purchase cost of the sweatshirts \$15 Commission to the student salespersons \$7 \$22 Contribution margin \$8

Unit sales needed to attain the target profit​ = Target Profit/ Contribution margin

Unit sales needed to attain the target profit​ = \$6,400/\$8

Unit sales needed to attain the target profit​ = 800 Units

Dollar sales needed to attain the target profit = Unit sales needed to attain the target profit​*Selling price

Dollar sales needed to attain the target profit = 800*\$30

Dollar sales needed to attain the target profit = \$24,000

Calculation of solution-2

Fixed Cost = 240 sweatshirts*\$15.00 per sweatshirt

Fixed Cost = \$3,600

 Selling price \$30 Variable expenses (commissions only) \$7 Contribution margin \$23

Unit sales to break even = Fixed expenses /Unit contribution margin

Unit sales to break even =​ \$3,600/\$23

Unit sales to break even =​​ 157 Units sweatshirts​

157 sweatshirts*\$30 per sweatshirt = \$4,710 in total sales

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