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1) if a local t-shirt firm has fixed costs of $1500, sells each t-shirt for $12, there are 5280 feet in a mile, and the firm has been in business for three years. what is the contribution margin per shirt if variable costs are $5 and you wear a size 10 shoe?
2) give the information in #1 above is the BEP?
3) given the information in #2 and #3, if the firm sells 180 shirts, should it shut down? why?
4) what will profits be if the firm sells 300 shirts?
Expert Answer
1) contribution margin per shirt = sells each t-shirt for $12 – variable costs $5 = $ 7
2) BEP ( units ) = fixed costs / contribution margin per shirt = 1500 / 7 = 214 shirts
3) Yes, since 180 shirts are less than the BEP units of 214 units and therefore, the firm will not be able to cover its fixed costs also.
4) Profit = 300 * 7 – 1500 = $ 600
