Review the Chapter opener. Johnny Cupcakes, launched by entrepreneur John Earle, produces t-shirts in unique styles and limited quantities. Selling prices typically range from $40 per shirt to $70 per shirt.
Required: Write a one page memo to John explaining:
1. Identify at least two fixed costs that will not change regardless of how many t-shirts Johnny Cupcakes produces.
2. How could overly optimistic sales estimates potentially hurt John Earle's business?
3. Explain how cost-volume-profit analysis can help John Earle manage Johnny Cupcakes.