Problem: At the end of October, Sandra lamented the companys situation: in the middle of production of Flint-Ts most popular long-sleeve T-shirt, the company ran out of its usual collars, purchased from one main supplier. That supplier was also sold out. Flint-T could get a slightly different premade collar, from a new supplier, at the same cost. So Sandra went ahead with the order, hoping it wouldnt delay production or affect the quality of the shirts.

As it turned out, the new collars failed Flint-Ts quality control testing. Stuck with unwearable T-shirts, the company was also in a bind with its retail outlets, which wanted more shirts to sell! The costs to produce this recent batch of shirts is as follows.

Direct material $84,000

Direct labor $26,000

Manufacturing overhead $15,000

Total costs $125,000

Volume in batch: 20,000

A) How much cost does Flint-T have tied up in each of these T-shirts? If it normally sells these shirts for $15 to the retailer, how much gross margin per unit does it fenrat4e on these sales? (Round answer to 2 decimal places, e.g. 15.25.)

Total cost $ 6.25 /unit

Gross margin $ 8.75 /unit

(Answer A is correct)

Question: How much gross margin per unit will Flint-T generate if it fixes and sells these reworked shirts?

B) Scrambling, Sandra has gone back to her original supplier of collars, which thankfully now has a large quantity it can ship to her. These collars cost $0.55 each, and the company can get enough of them to go back and fix the collars on the recently ruined batch, plus put some into the warehouse for a future batch. In order to fix the botched T-shirts, though, Flint-T will need to incur an extra $2 per shirt in labor costs to carefully remove the bad collars and re-attach the new ones. These reworked shirts should still be salable to retailers at the regular selling price.

How much gross margin per unit will Flint-T generate if it fixes and sells these reworked shirts? (Round answer to 2 decimal places, e.g. 15.25.)

Gross margin $ ____ / unit

(It is not 8.80)