You Have Been Asked to Calculate the Break-Even Point for a New

question 237

Multiple Choice

You have been asked to calculate the break-even point for a new line of shirts.The selling price will be $35 per shirt.The labour costs will be $5 per shirt.The administrative costs of operating the company are estimated to be $60,000 annually and the sales and marketing expenses are $20,000 a year.Additionally,the cost of materials will be $10 per shirt.What is the break-even quantity?

• A)1,715 shirts
• B)2,286 shirts
• C)3,000 shirts
• D)4,000 shirts

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Definitions:

Right To Buy

A legal provision giving tenants the opportunity to purchase the home they are renting, often at a discount.

Real Option

A choice made available to managers regarding investment opportunities, considering the flexibility to adapt to market changes.

Call

A contract that grants the holder the ability, though not the requirement, to purchase a certain quantity of an underlying asset at a predetermined price before a specified deadline.

Exercise Price

The set price at which an option's holder has the right to purchase (call) or sell (put) the underlying asset.