1 Break-Even Analysis Using the Contribution Margin Analyze the following three options and preform a Break-Even analysis for each using the contribution margin method for Karl's T-Shirt Company. Option 1 Option 2 Option 3 3 4 5 6 7 8 Volume (units) Price per unit Sales revenue Unit variable cost Contribution margin 0 0 9 0.00 0.00 0.00 Option 1 Option 1 is to import the finished goods internationally for sale domestically in a retail outlet, this option requires a very high minimum purchase order (250,000 Units) however has the advantage of a lower per unit cost and lower fixed costs. This plan has the following costs and revenue associated: Volume (units): 250,000 Selling Price Per unit: $11.99 Unit Variable Cost: $9.50 Fixed Costs:$255,000 Depreciation: $5,000 10 11 12 13 14 Fixed costs Cash fixed costs Depreciation Total fixed costs 0 0 0 0 0 0 Profit/loss statement Sales revenue Variable costs Contribution Fixed costs Profit (loss) 0 0 0 0 0 0 0 0 0 0 15 16 17 18 19 20 21 22 P3 24 25 26 27 28 29 30 Break-even point (in units) Regular break-even % of sales Cash break-even % of sales #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Option 2 This option requires the purchase of a textile machine that can produce fabrics with a higher thread count. Unfinished goods are imported internationally in form of threads and then processed for final sale domestically. It will require an additional investment of $200,000 compared to option 1 but has the advantage of higher quality goods and as such will sell for a higher price. This plan has the following costs and revenue associated: Volume (units): 180,000 Selling Price Per unit: $25.00 Unit Variable Cost: $21.00 Fixed Costs:$455,000 Depreciation: $10,000 Option 3 The last option is to sell custom T-shirts that are made-to-order. This option requires the highest fixed costs because it requires a printing machine to print custom labels or designs for customers. Variable costs for this option are low compared to other options and has the advantage of charging a premium for the shirts being custom and "made-to-order". This plan has the following costs and revenue associated: Volume (units): 80,000 Selling Price Per unit: $35.00 Unit Variable Cost: $15.00 Fixed Costs:$1,200,000.00 Depreciation: $40,000 #DIV/0! #DIV/0! #DIV/0! 31 32 Profit objective to make ($) you need to sell (units) to make ($) you need to sell (units) to make ($) you need to sell (units) #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! Break-even point (in revenue) 33 34 35 36 37 38 89 30 31 12 3 Regular break-even #DIV/0! #DIV/0! #DIV/0! Which Option would you choose for the short term? What about for the long term? Why? You may Input your answer below. Cash break-even #DIV/0! #DIV/0! #DIV/0! 0 0 35 #DIV/0! #DIV/0! Profit objective to make you need to sell to make you need to sell to make you need to sell 0 0 0 #DIV/0! 0 #DIV/0! 0 #DIV/0! #DIV/0! #DIV/0! 26 17 28 19 50 51 0 0 #DIV/0! #DIV/0