Maddie Noticed That Many Students on Campus Had T-Shirts and Sweatshirts

question 99

Multiple Choice

Maddie noticed that many students on campus had t-shirts and sweatshirts with Greek organization letters or club names on them. Recognizing that there was a huge market for this attire, Maddie rented a store front and a silk screening machine to get into the t-shirt business. Maddie's rent is $1,000 a month, including utilities. The silk screen machine leases for $300 a month. Maddie can buy blank t-shirts for $4 each and sweatshirts for $10 each. Maddie calculated the cost of materials for the silk screening at $2 per unit. If Maddie sells a screened t-shirt for $20 and a sweatshirt for $25 each, which would she prefer the customer purchase?

• A) T-shirt because the contribution margin is higher
• B) Sweatshirt because the cost of production is lower
• C) Sweatshirt because the selling price is higher
• D) T-shirt because the cost of production is lower

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Definitions:

Credit Card Sales

Credit card sales refer to transactions in which goods or services are purchased by customers using credit cards as the method of payment.

Cash Equivalents

Short-term, highly liquid investments with original maturities of three months or less, easily convertible into a known amount of cash.

Commercial Paper

An unsecured, short-term debt instrument issued by corporations, typically used for financing inventory and accounts receivable.

Accounts Receivable

Represents the money owed to a company by its customers for goods or services that have been delivered but not yet paid for.