1. Continue to assume that 7,800 t-shirts will be made and sold in the first year. What is your product cost per unit under absorption costing? What is your product cost per unit under variable costing? 2. Based on the estimated sales level of 7,800 t-shirts for the first year, prepare your companys (forecasted) income statement for the year ended on 12/31/2020 using both (a) the traditional format based on the absorption costing and (b) the contribution format based on the variable costing. 3. Calculate contribution margin per T-shirt and contribution margin ratio. 4. Calculate how many T-shirts you need to sell in order to break-even. Calculate how much sales in dollars you need to make in order to break-even. (Use break-even formulas.) 5. Calculate how many T-shirts you need to sell in order to make $10,000 target profit for the year. 6. Continue to assume that 7,800 T-shirts will be made and sold during the first year. Calculate your (a) margin of safety and (b) degree of operating leverage (DOL) for your business. What do these figures tell you about how risky your business is?

1 Q2 2 Variable Cost 3 Cost Items Cost per T-Shirt 4 Manufacturing 5 Cost of T-shirt 3.75 3.75 6 Transfer Paper (400/1000 Sheets) 0.4 7 Ink-Jet catridge ($50/500) prints 0.1 8 Labour Charges of part time workers Printing (1 Hour*$8)/10 shit 0.8 9 10 Total Variable Manufacturing Cost per T-Shirt 5.05 11 12 Non-Manufacturing 13 Ink-Jet catridge ($50/500)*1 print/5 shirts 0.2 14 Laser paper ($20/200sheets) 0.1 15 Wrapping Paper and box 0.2 16 Labour Charges of part time workers Flod,wrap and box (1 Hour 0.4 17 18 Total Variable Non-Manufacturing Cost per T-Shirt 0.72 19 Total Variable Cost per T-Shirt 5.77 Cost per Year 27000 1500 10300 1800 1500 42100 21 Q3 22 Fixed Cost 23 Cost Items 24 Manufacturing 25 Stoneridge charges(2500*12*90%) 26 Storage units (125*12) 27 Design charges (10000+300) 28 Campeuter and Printer (6000/3)*90% 29 Heat press Machine (4500/3) 30 Total Fixed Manusacturing Cost per Year 31 32 Non-Manufacturing 33 Stoneridge charges(2500*12*10%) 34 Compeuter and Printer (6000/3)*10% 35 Selling and administrative 36 Insurance 37 Party Expenses (4*1000) 38 Total Fixed Non-Manufacturing Cost per Year 39 Total Fixed Cost per Year 40 3000 200 12000 3600 4000 22800 64900 50 Q4 51 Y=a+bX 52 Y= Total cost 53 a= Fixed cost 64900 54 b= Varlable cost 5.77 55 X= Namber of T-shirts sold 56 57 Y=64900+5.77 X 58 59 Q5 60 Y=64900+5.77*7800=109606 61 Profit if the sale price is $15 per T-shirt 62 Sales=Namber of T-shirts sold*sale price 63 Sales=7800*15= 117000 64 Profit=Sales-Total cost 65 Profit=117000-109606= 7394 66 67 1 Q2 2 Variable Cost 3 Cost Items Cost per T-Shirt 4 Manufacturing 5 Cost of T-shirt 3.75 3.75 6 Transfer Paper (400/1000 Sheets) 0.4 7 Ink-Jet catridge ($50/500) prints 0.1 8 Labour Charges of part time workers Printing (1 Hour*$8)/10 shit 0.8 9 10 Total Variable Manufacturing Cost per T-Shirt 5.05 11 12 Non-Manufacturing 13 Ink-Jet catridge ($50/500)*1 print/5 shirts 0.2 14 Laser paper ($20/200sheets) 0.1 15 Wrapping Paper and box 0.2 16 Labour Charges of part time workers Flod,wrap and box (1 Hour 0.4 17 18 Total Variable Non-Manufacturing Cost per T-Shirt 0.72 19 Total Variable Cost per T-Shirt 5.77 Cost per Year 27000 1500 10300 1800 1500 42100 21 Q3 22 Fixed Cost 23 Cost Items 24 Manufacturing 25 Stoneridge charges(2500*12*90%) 26 Storage units (125*12) 27 Design charges (10000+300) 28 Campeuter and Printer (6000/3)*90% 29 Heat press Machine (4500/3) 30 Total Fixed Manusacturing Cost per Year 31 32 Non-Manufacturing 33 Stoneridge charges(2500*12*10%) 34 Compeuter and Printer (6000/3)*10% 35 Selling and administrative 36 Insurance 37 Party Expenses (4*1000) 38 Total Fixed Non-Manufacturing Cost per Year 39 Total Fixed Cost per Year 40 3000 200 12000 3600 4000 22800 64900 50 Q4 51 Y=a+bX 52 Y= Total cost 53 a= Fixed cost 64900 54 b= Varlable cost 5.77 55 X= Namber of T-shirts sold 56 57 Y=64900+5.77 X 58 59 Q5 60 Y=64900+5.77*7800=109606 61 Profit if the sale price is $15 per T-shirt 62 Sales=Namber of T-shirts sold*sale price 63 Sales=7800*15= 117000 64 Profit=Sales-Total cost 65 Profit=117000-109606= 7394 66 67