Question

Problem 3-33 Adam Granger operates a kiosk in downtown Chicago, at which he sells one style of baseball hat. He buys the hats from a supplier for $16 and sells them for $22. Adam's current breakeven point is 20,250 hats per year. Calculate contribution margin per unit. Contribution margin per unit $ LINK TO TEXT LINK TO TEXT LINK TO VIDEO What is Adam's current level of fixed costs? (Use the rounded contribution margin per unit calculated in the previous part.) Current level of fixed costs $ LINK TO TEXT LINK TO TEXT LINK TO VIDEO Assume that Adam's fixed costs, variable costs, and sales price were the same last year, when he made $28,350 in net income. How many hats did Adam sell last year, assuming a 30% income tax rate? (Use the rounded contribution margin per unit calculated in the previous part.) hats

Answer 1

1)
	Contribution Margin Per Unit = Sales price - variable cost per unit
	= $22-16
	= $6 per unit
2)
	Break-even Point In-Units = Fixed Cost/ Contribution Margin Per Unit
	20250 = Fixed Cost /$6
	Fixed Cost = 20250*$6
	Fixed Cost = $121500
3)	Net Income = $28350
	Income before tax = $28350/(1-0.3)
	=$40500
	Hates need to be sold for earned $40500
	=(fixed cost + desired profit)/ contribution margin per unit
	=($121500+40500)/$6
	=27000 hats
4)	Margin Of Safety = Sales - Break Even point
	=($27000*$22) - (20250*$22)
	=$148500
6)	Net Income = $51030
	Income before tax = $51030/(1-0.3)
	=$72900
	Hates need to be sold for earning $72900
	=(fixed cost + desired profit)/ contribution margin per unit
	=($121500+72900)/$6
	=32400 hates
6)	Contribution Margin Per Unit = Sales price - variable cost per unit
	= $22-17
	=$5
	Break-even Point In Units = Fixed Cost/ Contribution Margin Per Unit
	= $121500/5
	=24300 hats
7)	Net Income
	Sales		$         5,89,950
	[(27000-5%)*$23)
	Less:
	Variable Cost		$         4,36,050
	[(27000-5%)*$17]
	Fixed Cost		$         1,21,500
	Income Before tax		$             32,400
	Tax @30%		$               9,720
	Net Income		$             22,680
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