Problem 3-33 Adam Granger operates a kiosk in downtown Chicago, at which he sell

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 $33 and sells them for $39. Adam's current breakeven point is 18,000 hats per year E] Your answer is correct. Calculate contribution margin per unit. Contribution margin per unit SHOW SOLUTIONSHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO VIDEO Your answer is correct. What is Adam's current level of fixed costs? (Use the rounded contribution margin per unit calculated in the previous part 108000 Current level of fixed costs SHOW SOLUTION SHOW ANSWER LINK TO TEXT LINK TO TEXT LINK TO VIDEO Your answer is incorrect. Try again Assume that Adam's fixed costs, variable costs, and sales price were the same last year, when he made $25,200 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.) 18000 hats

Explanation / Answer

Answer c.

Contribution Margin per unit = $6
Fixed Costs = $108,000
Net Income = $25,200

Income before tax = Net Income / (1 - tax)
Income before tax = $25,200 / (1 - 0.30)
Income before tax = $36,000

Number of units sold = (Fixed Costs + Income before tax) / Contribution Margin per unit
Number of units sold = ($108,000 + $36,000) / $6
Number of units sold = 24,000

So, Adam sold 24,000 hats last year

Answer d.

Contribution Margin per unit = $6
Fixed Costs = $108,000
Desired Net Income = $45,360

Desired Income before tax = Desired Net Income / (1 - tax)
Desired Income before tax = $45,360 / (1 - 0.30)
Desired Income before tax = $64,800

Required number of units = (Fixed Costs + Desired Income before tax) / Contribution Margin per unit
Required number of units = ($108,000 + $64,800) / $6
Required number of units = 28,800

So, Adam must sell 28,800 hats to earn net income of $45,360

Answer e.

Selling Price per unit = $39
Cost per unit = $34

Contribution Margin per unit = Selling Price per unit - Cost per unit
Contribution Margin per unit = $39 - $34
Contribution Margin per unit = $5

Fixed Costs = $108,000

Breakeven Sale = Fixed Costs / Contribution Margin per unit
Breakeven Sale = $108,000 / $5
Breakeven Sale = 21,600

So, Adam has to sell 21,600 to achieve breakeven

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