# Question & Answer: e sells one style of baseball hat. He buys the hats from a supplier for \$36 and sells them for \$42. Adam’s cur…..

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 \$36 and sells them for \$42. Adam’s current breakeven point is 33,600 hats per year.

1.

contribution margin per unit=Selling price-Variable cost

=\$42-\$36

=\$6

2.

current level of fixed costs=current breakeven point*contribution margin per unit

=33,600*\$6

=\$201,600

3.

Sales to be made=Fixed costs+[Net income/(1-tax rate)]/Contribution margin per unit

=\$201,600+[\$47040*(1-0.3)]/\$6

=44,800 hats

4

margin of safety=Actual sales-Break even sales

=44,800-33,600

=11,200 hats

5

Sales to be made=Fixed costs+[Net income/(1-tax rate)]/Contribution margin per unit

=\$201,600+[\$84672*(1-0.3)]/\$6

=53,760 hats

6.

break even sales=Fixed cost/Contribution margin per unit

=\$201,600/(\$42-\$37)

=40,320 hats

7.