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:

Variable Cost

A cost that changes in proportion with the level of output or activity.

Fixed Cost

Expenses that do not change with the level of output or sales, remaining constant even if the business activity varies.

Activity Variance

The difference between what was expected in terms of expenses or revenues for a particular activity level and what was actually realized.

Vehicle Operating Cost

The total expense associated with keeping a vehicle running, including fuel, maintenance, insurance, and depreciation.