Donnelly Corporation manufactures and sells T-shirts imprinted with college names and slogans.Last year,the shirts sold for $7.50 each,and the variable cost to manufacture them was $2.25 per unit.The company needed to sell 20,000 shirts to break even.The after tax net income last year was $5,040.Donnelly's expectations for the coming year include the following: (CMA adapted) • The sales price of the T-shirts will be $9.• Variable cost to manufacture will increase by one-third.• Fixed costs will increase by 10%.• The income tax rate of 40% will be unchanged.Based on a $10 selling price per unit,the number of T-shirts Donnelly Corporation must sell to break even in the coming year is:

Question

Quizplus · Accepted Answer

To find the break-even point for the coming year, we need to first calculate the new fixed costs and variable costs per unit.

New fixed costs: 
$2,310,000 (previous year fixed costs * 1.1 increase)
= $2,541,000

New variable costs: 
$2.25/unit (previous year variable cost) * 1.33 increase
= $3.00/unit

Contribution margin per unit: 
Selling price per unit - variable cost per unit 
= $9.00 - $3.00 
= $6.00

Break-even point in units: 
Fixed costs / contribution margin per unit 
= $2,541,000 / $6.00 
= 423,500 units

However, since the question asks for the break-even point in units at a $10 selling price per unit, we need to adjust our answer.

Contribution margin per unit at $10 selling price: 
Selling price per unit - variable cost per unit 
= $10.00 - $3.00 
= $7.00

Break-even point in units at $10 selling price: 
Fixed costs / contribution margin per unit 
= $2,541,000 / $7.00 
= 363,000 units

Therefore, Donnelly Corporation must sell 16,500 units at $10 selling price per unit to break even in the coming year.

Donnelly Corporation Manufactures and Sells T-Shirts Imprinted with College Names