Answer to Question #98187 in Accounting for Jay

Question

George’s T-Shirt Shop produces 5,000 custom printed T-shirts per month. George’s fixed costs are $15,000 per month. The marginal cost per T-shirt is a constant $4. What is his break-even price? What would be George’s break-even price if he were to sell 50% more shirts?

Answer 1

FC + VC - PQ = 0, where FC - fixed costs, VC - variable costs, PQ - Volume of sales

15000 + 5000*4 - 5000*x = 0, x is break-even price

x = $7.

If sell will be increased on 50%, then

15000 + (5000+50%)*4 - (5000+50%)*x = 0

x = $6