# 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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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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Contribution Margin Per Unit:

 Sales  Per Unit 42 Less : Variable Cost  Per Unit 36 Contribution Margin  Per Unit 6

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