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.Sales for the coming year are expected to exceed last year's by 1,000 units.If this occurs,Donnelly's sales volume in the coming year will be:

Question

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The correct answer is A.The sales volume in the coming year will be 22,600 units.The break-even point is calculated as follows:Break-even point = Fixed costs / (Sales price per unit - Variable cost per unit)Last year, the break-even point was 20,000 units. This year, fixed costs will increase by 10%, so the new break-even point will be 22,000 units.The sales volume in the coming year is expected to exceed last year's by 1,000 units. Therefore, the sales volume in the coming year will be 22,000 + 1,000 = 23,000 units.

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