Julianna Abdallah owns and operates FirstCakes, a bakery that creates personaliz

Question

Julianna Abdallah owns and operates FirstCakes, a bakery that creates personalized birthday cakes for a child’s first birthday. The cakes, which sell for $64 and feature an edible picture of the child, are shipped throughout the country. A typical month’s results are as follows:

$ 100,000

Assuming a 30% tax rate, how many cakes will Julianna Abdallah have to sell if she wants to earn $144,704 in net income each month? (Round answer to 0 decimal places, e.g. 5,275.)

Sales revenue $869,120 Variable expenses 651,840 Contribution margin 217,280 Fixed expenses 117,280 Operating income

$ 100,000

Explanation / Answer

Operating income(1-tax rate)=Net income

Hencce operating income required=$144704/(1-0.3)

=$206720

Target Contribution margin=Fixed cost+Target operating income

=(117280+$206720)

=$324000

Current unit sold=$869120/$64

=13580 units

Hence Contribution margin per unit currently=$217280/13580

=$16 per unit

Hence target cakes=(324000/16)

=20250 cakes.

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