Problem 3-33 Adam Granger operates a kiosk in downtown Chicago, at which he sell
ID: 2611138 • Letter: P
Question
Problem 3-33 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 $30 and sells them for $36. Adam's current breakeven point is 25,500 hats per year. Your answer is correct. Calculate contribution margin per unit. Contribution margin per unit SHOW SOLUTION SHOW ANSWER LINK TO TEXI LINK TO TEXT [ Your answer is correct. What is Adam's current level of fixed costs? (Use the rounded contribution margin per unit calculated in the previous part.) 153,00 Current level of fixed costs $Explanation / Answer
Answer
1.
Lets units sold = x
Contribution Margin = Sales – Variable cost
= ($36 * x) – ($30 * x)
Contribution Margin = 6x
Net income before tax = Contribution margin – Fixed Cost
Net income before tax = 6x – 153,000
Net Income after Tax = Net income before tax – 30%
= 6x – 153,000 – [30% * (6x – 153,000)]
= 6x – 153,000 – 1.8x + 45900
Net Income after Tax = 4.2x – 107,100
Profit = Net income after tax
35,700 = 4.2x – 107,100
4.2x = 142,800
X = 34,000 Hats
Adam must have sold 34,000 Hats last year.
2.
Margin of Safety = Actual Sales – BEP (In value)
BEP (In Value) = BEP (In Units) * Sales price per Hat
= 25,500 Hats * $36 per unit
BEP (In Value) = $918,000
Actual Sales = 34,000 * $36 per Hat
Actual Sales = $1,224,000
Margin of Safety = Actual Sales – BEP (In value)
= 1,224,000 - 918,000
Margin of Safety = $306,000
3.
Lets units to be sold = x
Contribution Margin = Sales – Variable cost
= ($36 * x) – ($30 * x)
Contribution Margin = 6x
Net income before tax = Contribution margin – Fixed Cost
Net income before tax = 6x – 153,000
Net Income after Tax = Net income before tax – 30%
= 6x – 153,000 – [30% * (6x – 153,000)]
= 6x – 153,000 – 1.8x + 45900
Net Income after Tax = 4.2x – 107,100
Profit = Net income after tax
64,260= 4.2x – 107,100
4.2x = 171,360
X = 40,800 Hats
Adam have to sell 40,800 Hats to earn $64,260 Profit.
4.
New Contribution margin per hat = $5 per hat ($36 - $31)
Fixed Cost = 153,000 (Will remain same)
New BEP = Fixed Cost / new Contribution per hat
= 153,000 / 5
New BEP = 30,600 Hats
5.
New Sale price
37
Variable Cost
31
Units (34,000 – 5%)
32300
Sales
1,195,100
Variable Cost
1,001,300
Contribution Margin
193,800
Fixed Cost
153,000
Net profit before tax
40,800
Tax @ 30%
12,240
Net Profit after tax
28,560
New Sale price
37
Variable Cost
31
Units (34,000 – 5%)
32300
Sales
1,195,100
Variable Cost
1,001,300
Contribution Margin
193,800
Fixed Cost
153,000
Net profit before tax
40,800
Tax @ 30%
12,240
Net Profit after tax
28,560
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