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11 September, 14:55

You are selling a new line of T-shirts on the boardwalk. The selling price will be $25 per shirt. The labor cost is $5 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually, and the sales and marketing expenses are $20,000 a year. Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity? a. 8,000 shirts b. 16,000 shirts c. 5,334 shirts d. 3,200 shirts

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  1. 11 September, 17:23
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    Option (a) is correct.

    Explanation:

    Contribution per unit:

    = Selling price per unit - Variable cost

    = Selling price per unit - (Material + labor cost)

    = $25 - ($10 + $5)

    = $25 - $15

    = $10

    Fixed cost = Administrative cost + Sales and marketing expense

    = $60,000 + $20,000

    = $80,000

    Break-even quantity:

    = Fixed cost : Contribution per unit

    = $80,000 : $10

    = 8,000 shirts
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