Question

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 1 is to import the finished goods internationally for sale domestically in a retail outletthis 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

Option 2 This option requires the purchase of 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

Break-Even Analysis Using the Contribution Margin

Op 1 Op2 Op3

Volume (units)

Price per unit

Sales revenue 0 0 0

Unit variable cost

Contribution margin 0.00 0.00 0.00

Fixed costs

Cash fixed costs

Depreciation

Total fixed costs 0 0 0

Profit/loss statement

Sales revenue 0 0 0

Variable costs 0 0 0

Contribution 0 0 0

Fixed costs 0 0 0

Profit (loss) 0 0 0

Break-even point (in units)

Regular break-even

% of sales

Cash break-even

% of sales

Profit objective

to make ($)

you need to sell (units)

to make ($)

you need to sell (units)

to make ($)

you need to sell (units)

Break-even point (in revenue)

Regular break-even

Cash break-even

Profit objective

to make 0 0 0

you need to sell

to make 0 0 0

you need to sell

to make 0 0 0

you need to sell