17-year-old Arin is a budding entrepreneur. He is always coming up with new business ideas. In early summer 2022, his latest venture is to sell quirky t-shirts based on favorite TV shows and movies. Arin is focused on making a high level of profits he is saving for college. Arin is trying to develop a marketing strategy to help her achieve his goals.

Last year Arin helped a friend with a customized t-shirts business. This year he wants to run his own business. His parents are his primary investors, but they expect him to pay for almost everything related to the business. Arins older brother helped him built an Instagram merchant profile for a nominal fee of $100. Arin had to purchase other supplies as well. Arin can get cotton t-shirts in any color from a wholesaler for $5 per unit. Also, he rented a hand press to create printed t-shirts for 6 months for $1000 from his brothers friend. The hand press can be programmed using a graphic design software. Arins brother is a graphic designer and he agreed to charge $7.05 per t-shirt. The additional costs include packaging and shipping worth $2.50 per t-shirt. Arin plans to charge $25 per t-shirt.

Arin is looking for some help with some of his calculations and in determining a price. Answer the following questions:

1. If Arin wants to earn a profit of $1200, what is his break-even point in dollars and in units?

Total fixed costs = $1100

Target Profit = $1200

Contribution per unit = SP VC = $25 $14.55 = $10.45

BEP in units = $1100 + $1200$10.45 = 220 units

BEP in dollars = 220 $25 = $5500

Note: This is not really a BEP but a target amount that we set as a goal to seek profits

2. Consider the following changes in the situation:

• Due to supply shortages, the per unit cost of cotton t-shirt has gone up by 20%.
• Also, Arin decided to promote his new venture on Instagram via influencers. He plans to put 3 Instagram post in collaboration with cheerleader captain and Literary club members. It increases his Instagram costs by 100%.

1. What is new total fixed costs?
2. What is new total variable costs?
3. If Arin still wants to maintain the profit of $1200, what would be his new break-even point in units and dollars?
4. How many additional units Arin would sell after the increase in costs?

3. Writing an income statement (also known as profit or loss statement) provides summary of the revenues and expenses of a firm