Question

George’s t-shirt shop produces 5,000 custom printed t-shirts per month. george’s fixed costs are $15,000 per month. the marginal cost per t-shirt is a constant $4. what is his breakeven price? what would be george’s breakeven price if george were to sell 50% more shirts?

Answer 1

Answer: Price is $7 when sale is 5000 and $6 when sale is 7,500 units.  

Explanation:

$Total cost of George = Fixed cost + Variable Cost = 15,000 + 4 (Units produced) = 15,000 + 4(5000) 15,000 + 20,000 = 35,000$

George will breakeven when his price is just sufficient to cost the total cost.  

$Break even = Profit = 0 Total revenue - Total cost = 0 P*Q - 35,000 = 0 P*5000 = 35000 P= 35,000/5000 P= 7$

 

If George sells 50% more, then his sales is 7,500 units.  

$Total cost of George = Fixed cost + Variable Cost = 15,000 + 4 (Units produced) = 15,000 + 4(7,500) 15,000 + 30,000 = 45,000$

George will breakeven when his price is just sufficient to cost the total cost.

$Break even = Profit = 0 Total revenue - Total cost = 0 P*Q - 45,000 = 0 P*7500 = 45000 P= 45,000/7,500 P= 6$

When sales is 5000 units price is $7. When sales is 7,500 units price is $6.