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

question 66

Multiple Choice

You have been asked to calculate the break-even point for a new line of T-shirts. The selling price will be $25 per shirt. The labor cost is $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)2,000 shirts
• B)3,200 shirts
• C)5,334 shirts
• D)8,000 shirts
• E)16,000 shirts

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Definitions:

Net Operating Income

The amount of income generated from regular business operations after subtracting operating expenses but before taxes and interest.

Single Product

Refers to a business strategy or condition where a company focuses on producing and selling one specific product.

Absorption Costing

A costing method that includes all manufacturing costs, both direct and indirect, in the cost of a product.

Net Operating Income

The total profit of a company after operating expenses are subtracted from operating revenues, but before taxes and interest are deducted.