While walking around campus you noticed that many students wear University t-shirts, shirts with their fraternity/sorority letters, or other shirts with something imprinted on them. However, you also know that it is usually rather expensive to buy these shirts and the assortment available is often limited. As a result, you decide to rent a store front on Main Street to start producing and selling t-shirts.

You rent space & a transfer machine used to put transfers (designs) on t-shirts. You will keep the shop open 150 hours per week, so you treat labor as a fixed cost -- it will not rise and fall based on production.

You estimate sales of 10 t-shirts every hour the shop is open (150 hours per month x 10 = 1,500 t-shirts per month)

Your cost structure is:

Rent of Retail Space (monthly) $300.00

Utilities (monthly) $250.00

Transfer Machine (monthly lease) $250.00

Labor costs (per hour) $ 7.50

Hours of Operation (total month) 150

Cost of T-Shirts (per dozen) $ 72.00

Cost of Transfers (each) $ 4.00

Selling Price of the shirt (each) $ 15.00

Estimated Sales (per hour) 10

BEV = fixed costs/contribution margin

$385 = $1,925 / $5

CALCULATE MONTHLY PROFIT OR LOSS. Please show your work.

monthly profit = revenue - incremental costs