Question

JP’s Designer Ski Apparel, Inc.

Joe and Phil are considering going into business selling silk-screened designer ski sweatshirts between October and February. They estimate their costs as follows for the five-month period.

Start-up costs (includes business license, stationery, etc.)               $1,400

Equipment rental (for five months) (telephone, fax, computer)            $1,200

Space rental per month (prepaid)                                                       $     90

Employee – a designer (for entire five months)                                 $   750

Materials (T-Shirts or Sweatshirts)                                                     $8.25 per shirt

1. Calculate how many shirts must be sold over this five month period in order to break-even, using the cost information listed above at the following various price levels.

Selling Price Per Shirt	Break-even Volume (Q)
$16
$14
$12

2. How many shirts must be sold at $12 in order to achieve a profit of $1000 over the five-month period?

Answer 1

1.

selling price	break even point
$ 16	443.87
$ 14	598.26
$ 12	917.33

reason:

To break even, total revenue = total cost.

total cost = 3440+8.25q (given)

a) when price = $16, total revenue = 16q

16q = 3440 + 8.25q  

3440 = 7.75q so, q = 443.87

b) when price= $14:

14q= 3440+8.25q

3440 = 5.75q so q = 598.26

c) when price = $12:

12q = 3440+ 8.25q

3440 = 3.75q so, q = 917.33

2. To make a profit of $1000 at price = $12: quantity must be 219.26

Formula: profit = Total revenue - total cost

1000 = 12q - 3440 + 8.25q

4440 = 20.25q so, q = 219.26