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Question: How to calculated the budgeted number of t shirts Joe Bloggs will have to sell each year to achieve target profit and explain the benefits behind an effective budgetry system?
Following info available:
Machine costs: $280,000
Capacity to produce: 800 t shirts
it would have Fixed running costs: $50,000 per annum(excluding depreciation)
$2 per set up for each t shirtSelling price of $26 per t shirt
A view to add $65,000 per annum to net profitThis can’t be answered as it stands. No life of machine to work out depreciation. No cost per shirt unless its the $2.
Generally, you have to make enough contribution to cover the fixed costs plus the required profit.
As for benefits of budgetary systems, I suggest you look at the F5 material on this site.
Hi,
Apologies the secnario further states that the seller of the machiene is willing to provide a gurantee for four years that it will not sell to any other company. The machiene will need replacing at this time and the old machinery can be expected to have zero residual value.
Thats the extra bit of information, but the question specfically asks to calculate would this be margin analysis i.e. break even point/ break even revenue and margin of safety. Thanks
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