Question

The fixed costs for your T-shirt business include the following for May: rent $1500 and utilities $500. If your production costs, including employee benefits and materials are $3000, what is the cost per item if you produce 1000 T-shirts?

Answer 1

The cost per T-shirt for the business, when considering fixed costs of $2000 for rent and utilities plus variable production costs of $3000, and producing 1000 T-shirts, is $5.00 per T-shirt.

Step-by-step explanation:

Calculating the Cost Per T-shirt

To calculate the cost per item, or in this case, the cost per T-shirt, we need to consider both fixed and variable costs. The fixed costs for the T-shirt business for the month of May include rent at $1500 and utilities at $500, totaling $2000. The production costs, which are variable costs, include employee benefits and materials totaling $3000. Together, the total costs are $5000. If the business produces 1000 T-shirts, we divide the total costs by the number of T-shirts to find the cost per T-shirt.

Cost per T-shirt = Total Costs / Number of T-shirts

Cost per T-shirt = $5000 / 1000

Cost per T-shirt = $5.00

Therefore, the cost to produce each T-shirt, when considering both fixed and variable costs, comes out to $5.00 per T-shirt.