ow many T-shirts must the company sell this year in order to earn $56,640 in net income? (Use the rounded contribution margin per unit calculated in the previous part to calculate Target Sales units. Round Target Sales units to 0 decimal places, e.g. 25,000.) W Promotions sells T-shirts imprinted with high school names and logos. Last year the shirts sold for $20.00 each, and variable costs were $8.50 per shirt. At this cost structure, the breakeven point was 24,600 shirts. However, the company actually earned $24,840 in net income.This year, the company is increasing its price to $22 per shirt. Variable
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
How many T-shirts must the company sell this year in order to earn $56,640 in net income? (Use the rounded contribution margin per unit calculated in the previous part to calculate Target Sales units. Round Target Sales units to 0 decimal places, e.g. 25,000.)
This year, the company is increasing its price to $22 per shirt. Variable costs per shirt will increase by 20%, and fixed expenses will increase by $30,980. The tax rate will remain at 40%.
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