Newham Textiles manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for £7.50 each, and the variable expense was £2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net operating income last year was £8,400. Donnelly's expectations for the coming year include the following:
* The selling price of the T-shirts will be £9.00.
* Variable expenses will increase by one third.
* Fixed expenses will increase by 10 selling price
-The number of T-shirts the company must sell to break even in the coming year is:

Question

Newham Textiles manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for £7.50 each, and the variable expense was £2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net operating income last year was £8,400. Donnelly's expectations for the coming year include the following:
* The selling price of the T-shirts will be £9.00.
* Variable expenses will increase by one third.
* Fixed expenses will increase by 10 selling price 
-The number of T-shirts the company must sell to break even in the coming year is:

Quizplus · Accepted Answer

To calculate the new break-even point for the coming year, we need to use the formula:

Unit Contribution Margin = Selling Price per Unit – Variable Expenses per Unit

Contribution Margin Ratio = Unit Contribution Margin / Selling Price per Unit

Break-Even Point (in Units) = Fixed Expenses / Contribution Margin Ratio

Let's start by calculating the unit contribution margin for the coming year:

Unit Contribution Margin = £9.00 - (£2.25 + £2.25*(1/3)) = £4.50

Next, we can calculate the contribution margin ratio:

Contribution Margin Ratio = £4.50 / £9.00 = 0.50

We already know that fixed expenses will increase by 10% from their previous level of £20,000:

New Fixed Expenses = £20,000 * 1.10 = £22,000

Now we can calculate the new break-even point:

Break-Even Point (in Units) = £22,000 / 0.50 = 19,250

Therefore, the company must sell 19,250 T-shirts to break even in the coming year. The best choice is B).

Newham Textiles Manufactures and Sells T-Shirts Imprinted with College Names