Question

6. F Company manufactures and sells T-shirts. Last year, the shirts sold for $7.50 each, and the variable cost to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts to break even. The net income last year was $5,040. F Company’s expectation for the coming year include the following:-The selling price of the T-shirts will be $9.00-Variable cost to manufacture will increase by one-third-Fixed costs will increase by 10%-The income tax rate of 40% will be unchanged What is the number of T-shirts that must be sold to break even in the coming year?

Answer 1

Break even units are sales at which there are no profit no loss

firstly we will find fixed costs in previous year

break even units = fixed cost/ contribution margin per unit

contribution margin per unit = sales-variable cost

=$7.50-2.25

=$5.25

20,000= fixed costs/$5.25

fixed costs = $5.25*20,000

=$105,000

___________________

current year

sales= $9

variable cost = Increase by 1/3

$2.25 + [$2.25/3]

=$3.00

fixed cost = $105,000*110% [ Increase by 10%]

=$115,500

break even units = fixed cost/ contribution margin per unit

=$115,500/($9-$3)

=$115,500/$6

=19,250 units

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