Gina Fox has started her own company, Foxy Shirts, which manufactures imprinted shirts for special oc- casions. Since she has ju
1 answer:
Answer:
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Gina Fox has started her own company, Foxy Shirts, which manufactures imprinted shirts for special occasions. Since she has just begun this operation, she rents the equipment from a local printing shop when necessary. The cost of using the equipment is $350. The materials used in one shirt cost $8, and Gina can sell these for $15 each.
(a) If Gina sells 20 shirts, what will her total revenue be? What will her total variable cost be?
(b) How many shirts must Gina sell to break even?
What is the total revenue for this?
The answers are:
a.) Total Revenue = $300; Total variable cost = $160
b.) Break even number of shirts to be sold = 34 shirts; Total revenue for this = $510
Explanation:
a.) Total revenue is the total amount realized after the sales of 15 shirts. To calculate this, we are told that she sold 20 shirts for $15 each, therefore total revenue = Number of shirts sold × price of one shirt
∴ Total revenue = 20 × 15 = $300.
The variable cost of production is the cost that changes with the volume of products produced. In this example, the variable cost is the cost of materials used in making shirts, while the rent on equipment is the fixed cost, because its price remains the same irrespective of the volume of production. To calculate the total variable cost, we will multiply the variable cost of one shirt, with the total number of shirts produced;
cost of 1 shirt = $8
∴ cost of 20 shirts = 8 × 20 = $160
b.) The break even point is the point where the total cost equals total revenue. In order to calculate this, we will first of all calculate the total cost, which includes both the variable and fixed costs.
Total cost: Total fixed cost + Total variable cost
Total fixed cost = $350 (cost of renting equipment)
Total variable cost = 8 × 20 = $160 (calculated above)
∴ Total fixed cost + Total variable cost = 350 + 160 = $510
Therefore, to break even, the total revenue must also equal this cost price of $510. Now to calculate the number of shirts sold that equals this amount;
$15 = 1 shirt
∴ $510 = 1/15 × 510 =
Therefore when 34 shirts are sold, total revenue = total cost.
Total revenue for 34 shirts = $510 (calculated and explained above).
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