Question

J.Crew is planning a new line of jackets for fall. It plans to sell the jackets for $100. It is having the jackets produced in the Dominican Republic. Although J. Crew does not own the factory, its product development and design costs are $400,000. The total cost of the jacket, including transportation to the stores, is $45.

1. What is the breakeven quantity for this item? That is, the number that J. Crew will need to sell in order to not lose money?(Treat product development and design costs [$400,000] as fixed, cost of each jacket including transportation [$45] as unit variable cost)
a. 6.846 jackets
b. 7,273 jackets
c. 9,118 jackets
d. 8,435 jackets
2. What is the breakeven point, in sales revenue dollars?
a. $727,300
b. $684,600
c. $843,500
d. $911,800

Answer 1

Results are below.

Step-by-step explanation:

To calculate the break-even point in units and dollars, we need to use the following formulas:

Break-even point in units= fixed costs/ contribution margin per unit

Break-even point in units= 400,000 / (100 - 45)

Break-even point in units= 7,273

Break-even point (dollars)= fixed costs/ contribution margin ratio

Break-even point (dollars)= 400,000 / 0.55

Break-even point (dollars)= $727,300

Contribution margin ratio= contribution margin / selling price per unit

Contribution margin ratio= 55 / 100= 0.55