EXERCISE 6-17 (30 MINUTES)

2. Since an order has been placed, there is now a “fixed” cost associated

with the purchase price of the sweatshirts (i.e., the sweatshirts can’t be

returned). For example, an order of 75 sweatshirts requires a “fixed”

cost (investment) of $600 (75 sweatshirts × $8.00 per sweatshirt =

$600). The variable cost drops to only $1.50 per sweatshirt, and the

new contribution margin per sweatshirt becomes:

Selling price ... $13.50

Less variable expenses (commissions only)... 1.50

Contribution margin... $12.00

Since the “fixed” cost of $600 must be recovered before Mr. Hooper

shows any profit, the break-even computation would be:

Fixed expenses

Break-even point= in unit sales Unit contribution margin

= $600 =50 sweatshirts

$12.00 per sweatshirt

50 sweatshirts × $13.50 per sweatshirt = $675 in total sales

If a quantity other than 75 sweatshirts were ordered, the answer would

Problem 6-28 (60 minutes)