Question

The Fashion-Plus Clothing Company (FPCC) is a well-known manufacturer of high quality clothing. FPCC is planning to introduce a new line of men's sport shirts next year. FPCC knows what it will cost to produce the shirts:Cloth $2.20 per shirt

Buttons .05 per shirt
Thread .05 per shirt
Direct labor 1.33 per shirt
Shipping .27 per packaged shirtFPCC wants to follow a penetration pricing strategy in which the shirts will be priced $15.00 in the retail store. Retailers are accustomed to a 40% markup on shirts. FPCC knows that it will incur advertising and selling costs of $30,000 the first year in order to introduce the new line. Other fixed costs for the new shirts will be around $117,660. Required:1. What dollar sales will FPCC need to have at manufacturer's prices before it starts making a profit?

Answer 1

232, 255 dollar sales FPCC need to have at manufacturer's prices before it starts making a profit.

Step-by-step explanation

Lets start with calculation of Variable cost that includes following

Cloth per shirt = 2.2

Button per shirt = 0,05

Thread per shirt = 0.05

Direct labor per shirt = 1.33

Shipping per shirt = 0.27

Adding all these above cost we get per unit varibale cost = 3.9

Manufacturing sales price = 15/140*100 = 10.7

Now calculating sales = 10.7-3.9 = 6.8

Now calculating break even in order to determine point of profitable

Break even = FV/ contribution per unit = 147,600/ 6.8 = 21,706 units

Sales in dollars = 21,706 * 10.7 =232, 255 aprox