Question & Answer: Adam Granger operates a kiosk in downtown Chicago, at which he se s one style of basebal hat Adam's current breakeven…..

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Adam Granger operates a kiosk in downtown Chicago, at which he se s one style of basebal hat Adams current breakeven point is 18,150 hats per year e buys the ats from a supplier or s and sells the m for S Calculate contribution margin per unit. Contribution margin per unit $ LINK TO TEXT LINK TO TEXT LINK TO VIDEO What is Adams 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 Adams fixed costs, variable costs, and sales price were the same last year, when he made $25,410 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

Adam Granger operates a kiosk in downtown Chicago, at which he se s one style of basebal hat Adam’s current breakeven point is 18,150 hats per year e buys the ats from a supplier or s and sells the m for S 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 $25,410 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

Expert Answer

 

Contribution Margin Per Unit:

Sales  Per Unit 42.00
Less : Variable Cost  Per Unit 36.00
Contribution Margin  Per Unit 6.00

Current Level of Fixed Cost:

Break Even Sales = Fixed Cost / Contribution Margin Per Unit

18,150 = Fixed Cost / $ 6

or Fixed Cost = $ 18,150 * $ 6

= $ 108,900

Number of Hats sold last Year :

Net Income = 100%

Less : Taxes = 30%

Net Income = 70%

Given : Net Income = $ 25,410

Hence, Profit Before Taxes = $ 25,410 / 70%

= $ 36,300

Required Contribution Total = Profit Before Taxes + Fixed Cost

= $ 36,300+ $ 18,150

= $ 54,450

Contribution Margin Per Unit = $ 6

Hence, number of hats = Required Contribution Total /Contribution Margin Per Unit

= $ 54,450 /$ 6

9,075 Hats

Margin of Safety:

= Actual Sales – Breakeven Sales

= (9,075 Hats * $ 42 Per Hat ) – $ 108,900

= $ 272,250

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