Question

Laura Hall owns and operates WildhorseCakes, a bakery that creates personalized birthday cakes for a child's first birthday. The cakes, which sell for $40 and feature an edible picture of the child, are shipped throughout the country. A typical month's results are as follows: Sales revenue Variable expenses Contribution margin Fixed expenses Operating income $844,000 633,000 211,000 150,000 $ 61,000 (a) Your answer is correct. How many cakes will Laura Hall have to sell if she wants to earn $156,000 in operating income each month? 30.600 cakes

Answer 1

Net Income After Taxes = Net Income Before Taxes * (1- Tax Rate)

= $ 115,200

Taxes = 25%

Net Income Before Taxes = Net Income After Taxes / (1- Tax Rate)

= 115,200 / (1-25%)

= $ 153,600

Fixed Cost = $ 150,000

Contribution Margin Required = Net Income Before Taxes + Fixed Cost

= $ 153,600 + $ 150,000

= $ 303,600

Number of Units Sold = Sales / Selling Price Per Unit

= $ 844,000 /$ 40

= 21,100

Contribution Margin Per Unit = Contribution Margin / Number of Units Sold

= $ 211,000 / 21,100

= $ 10 Per Unit

Cakes to be sold to earn the required net income = Contribution Margin Required / Contribution Margin Per Unit

= $ 303,600 / $ 10 Per Unit

= 30,360 cakes

Answer = 30,360