Question

Julianna Abdallah owns and operates FirstCakes, a bakery that creates personalized birthday cakes for a child’s first birthday. The cakes, which sell for $60 and feature an edible picture of the child, are shipped throughout the country. A typical month’s results are as follows:

Sales revenue		$1,005,600
Variable expenses		754,200
Contribution margin		251,400
Fixed expenses		107,400
Operating income		$ 144,000

Assuming a 30% tax rate, how many cakes will Julianna Abdallah have to sell if she wants to earn $98,280 in net income each month? (Round answer to 0 decimal places, e.g. 5,275.) cakes eTextbook and Media Save for Later Attempts: 0 of 12 used Submit Answer

Answer 1

Selling price per unit= $60

Sales revenue = $1,005,600

Number of units sold = Sales revenue/Selling price per unit

= 1,005,600/60

= 16,760

Variable cost per unit = Total variable cost /Number of units

= 754,200/16,760

= $45

Contribution margin per unit = Selling price per unit - Variable cost per unit

= 60-45

= $15

Net income = $98,280

Tax rate = 30%

Operating profit = Net Income / (1- tax rate)

= 98,280 x (1-0.30)

= 98,280/0.70

= $140,400

Number of units to be sold to earn target profit = ( Fixed cost + Target profit)/ Contribution margin per unit

= ( 107,400+140,400)/15

= 16,520 cakes

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