Question

1. Elite Sportsware sells football jerseys for $50 each. It costs Elite Sportsware $30 per jersey for materials and labor (this is their variable Cost of Goods Sold). Operating costs are $75,000 each month (this is their fixed operating expenses per month). How many football jerseys does Elite Sportsware need to sell each month to break even? 2. How many football jerseys does Elite Sportsware need to sell in a month to make $25,000 profit for the month? Use the Cost Volume Profit method to solve this problem. Be sure and show all of your equations.

Answer 1

Selling price = 50$ per unit

Variable cost = Material + labour = 30$ per unit

Contribution per unit = Selling price - variable cost

= 50 - 30 = 20$ per unit

Fixed costs = 75000 $

1) Break even units= fixed cost / cont per unit

= 75000 / 20 = 3750

2) Required profit = 25000

Fixed cost = 75000

Required contribution = Required profit + fixed cost

= 25000 + 75000 = 100000

Required units to sold = Required contribution / contribution per unit

= 100000 / 20 = 5000