Question

If the Carolina Store on Franklin Street in Chapel Hill, North Carolina, sells University of North Carolina Tar heels T-shirts for $20.00 per shirt and if each shirt costs the retailer $4.00 to place in inventory, how many shirts would the store have to sell to break even if the store has fixed costs of $48,000 that it must also cover?

Answer 1

Answer:

3,000 shirts

Explanation:

This concept is called Break-Even Analysis.

In order to know how many shirts are required to break even, we must first need to know the contribution margin per unit which is simply selling price less the cost of inventory.

Contribution Margin = Selling Price - Cost of inventory

$16 = $20 - $4

Then, simply divide the fixed costs by the calculated contribution margin to know the break even number of shirts.

$48,000 / $16 = 3,000 shirts