Question

You have been asked to calculate the break-even point for a new line of souvenir T-shirts. The selling price will be $25 per shirt. The labor cost is $5 per shirt. The administrative costs of operating the company are estimated to be $60,000 annually and the sales and marketing expenses are $20,000 a year. Additionally, the cost of materials will be $10 per shirt. What is the break-even quantity? 8,000 shirts 2,000 shirts 3,200 shirts 5,334 shirts

Answer 1

8,000 shirts is the break-even quantity.

Explanation:

Given:

Selling price of shirt= $25

Labor cost of shirt= $5

Company operating cost= $60,000

Sales and marketing cost= $20,000

Cost of materials= $10

Break-even quantity= ?

Break-even quantity can be calculated using the following formula,

BEQ= FC/P-VC

       = (60,000+20,000)/25-(5+10)

       = (80,000)/10

BEQ = 8000