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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**