Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans.Last year,the shirts sold for $7.50 each,and the variable cost to manufacture them was $2.25 per unit.The company needed to sell 20,000 shirts to break-even.The after tax net income last year was $5,040.Donnelly's expectations for the coming year include the following: (CMA adapted)
• The sales price of the T-shirts will be $9
• Variable cost to manufacture will increase by one-third
• Fixed costs will increase by 10%
• The income tax rate of 40% will be unchanged.
Based on a $10 selling price per unit,the number of T-shirts Dorcan Corporation must sell to break-even in the coming year is:
A) 17,000 units.
B) 16,500 units.
C) 20,000 units.
D) 22,000 units.

Question

Dorcan Corporation manufactures and sells T-shirts imprinted with college names and slogans.Last year,the shirts sold for $7.50 each,and the variable cost to manufacture them was $2.25 per unit.The company needed to sell 20,000 shirts to break-even.The after tax net income last year was $5,040.Donnelly's expectations for the coming year include the following: (CMA adapted) 
• The sales price of the T-shirts will be $9
• Variable cost to manufacture will increase by one-third
• Fixed costs will increase by 10%
• The income tax rate of 40% will be unchanged.
Based on a $10 selling price per unit,the number of T-shirts Dorcan Corporation must sell to break-even in the coming year is:
A) 17,000 units.
B) 16,500 units.
C) 20,000 units.
D) 22,000 units.

Quizplus · Accepted Answer

The break-even point is calculated by dividing the total fixed costs by the contribution margin per unit. With the new selling price of $10, increased variable cost of $3 (one-third increase from $2.25), and increased fixed costs, the break-even point is 16,500 units.

Dorcan Corporation Manufactures and Sells T-Shirts Imprinted with College Names