The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking ofexpanding his sales by hiring local high school students, on a commission basis, to sell sweatshirts bearingthe name and mascot of the local high school.These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and theycould not be returned because of the unique printing required. The sweatshirts would cost Mr. Hooper$8 each with a minimum order of 75 sweatshirts. Any additional sweatshirts would have to be ordered inincrements of 75.Since Mr. Hooper’s plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be $13.50 each. Mr. Hooper would pay the students a commission of $1.50 for each shirt sold.Required:1. To make the project worthwhile, Mr. Hooper would require a $1,200 profit for the first three monthsof the venture. What level of sales in units and in dollars would be required to reach this target netoperating income? Show all computations.2. Assume that the venture is undertaken and an order is placed for 75 sweatshirts. What would beMr. Hooper’s break-even point in units and in sales dollars? Show computations and explain thereasoning behind your answer.
The Shirt Works sells a large variety of tee shirts and sweatshirts. Steve Hooper, the owner, is thinking of
expanding his sales by hiring local high school students, on a commission basis, to sell sweatshirts bearing
the name and mascot of the local high school.
These sweatshirts would have to be ordered from the manufacturer six weeks in advance, and they
could not be returned because of the unique printing required. The sweatshirts would cost Mr. Hooper
$8 each with a minimum order of 75 sweatshirts. Any additional sweatshirts would have to be ordered in
increments of 75.
Since Mr. Hooper’s plan would not require any additional facilities, the only costs associated with the project would be the costs of the sweatshirts and the costs of the sales commissions. The selling price of the sweatshirts would be $13.50 each. Mr. Hooper would pay the students a commission of $1.50 for each shirt sold.
Required:
1. To make the project worthwhile, Mr. Hooper would require a $1,200 profit for the first three months
of the venture. What level of sales in units and in dollars would be required to reach this target net
operating income? Show all computations.
2. Assume that the venture is undertaken and an order is placed for 75 sweatshirts. What would be
Mr. Hooper’s break-even point in units and in sales dollars? Show computations and explain the
reasoning behind your answer.
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