Question

Maddie noticed that many students on campus had sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the sweatshirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy sweatshirts for $10 each and determined the cost of materials for the silk screening at $2 per unit. Considering just the figures provided above, how many sweatshirts does she need to sell each month to breakeven if she prices the screened sweatshirts at $25?

Answer 1

Answer:

100 sweatshirts

Explanation:

To calculate the breakeven, we will first calculate the Contribution earned from each of the unit (sweatshirt) produced and sold.

Contribution per unit = Selling price per unit - Cost of producing one unit

Contribution per unit = $25 - ($10 + $2)

Contribution per unit = $13

Then in order to calculate breakeven, we divide the total fixed cost from the Per unit Contribution earned to determine the no. of unit at which we would be at breakeven (i.e. no profit no loss). As shown below:

Breakeven = Total Fixed Cost / Contribution per unit

Breakeven = ($1,000 + $300) / $13

Breakeven = 100 units of sweatshirt