Question

4. Max the Tailor is going to sell custom suits. He was able to rent a garage from his Uncle Ed for $2,000 a month, which includes utilities, and he already owns the equipment he needs. He anticipates being able to sell his suits for $500 each. The raw materials (fabric, buttons, zippers, thread, etc.) will cost an average of $75 for each suit, and he plans to spend $25 per suit to advertise them. Assuming these are all the costs and revenues, what will be Max's monthly break- even point in units? Does this seem like a reasonable amount for him to produce and sell every month? Please show your calculations.​

Answer 1

6 days. I think it's probably reasonable if his objective is to break even. See discussion below.

Step-by-step explanation:

Costs

Rent 2000

raw materials 75

Advertising 25

Total Costs = 2000 + (75 + 25)x

Total Costs = 2000 + 100x

Revenue

500* x

So you want to know what value of x will cause a break even point.

2000 + 100x = 500x Subtract 100x from both sides

2000 = 500x - 100x

2000 = 400x Divide by 400

x = 5

I don't know really if it is reasonable or not. But think of it this way: if he has to make 5 suits just to break even that means that he has on average about 6 days for one suit.

Anymore suits needed (like to live on) would mean that he'd have to be awfully quick with a needle and thread.