Question

Newcastle Ltd manufactures and sells T-shirts imprinted with college names and slogans. Last Year, the shirts sold for £7.50 each, and the variable cost was £2.25 per shirt. The company needed to sell 20,000 shirts to break even. The net operating profit last year was £8,400. The company’s expectations for the coming year include the following:

1. The selling price per T-shirt will increase by £1.50
2. Variable cost will increase by one third
3. Fixed cost will increase by 10%

If Newcastle Ltd wishes to earn £22,500 in net operating profit for the coming year, how much sales does this company have to make?

Answer 1

Company has to sales 23000 Unit to make target income of 22500

Detail working for your refrence

Fixed Cost = Contribution at BEP Point

=(7.5-2.25)*20000= 105000

Revised Selling Price= 7.50+1.50=9

Revised Variable cost per Unit =2.25+(2.25*1/3)=3

Contribution per Unit= 9-3= 6 per Unit

Revised Fixed Cost = 105000*1.10= 115500

Estmated Sales to earn target income ( Units)= (Fixed Cost + Target ) /CM per Unit

=(115500+22500)/6= 23000 Unit

In Value = 23000 UnitX 9= 207000