Question

Matthew frequently purchased a food truck from a local supplier. He is considering travelling to Harrisburg for a local festival to sell his tacos. Before Matthew purchases a permit to sell food at the festival, he wants to calculate how much volume he would need to sell for the trip to be profitable. Matthew met with his accountant to determine his food costs and what his tax liability would be, which in fact is a modest 20% tax on profits. After reviewing the below information, calculate (A) What number of tacos Matthew must sell to break even. (B) What number of tacos Matthew must sell to make a profit before tax of $650. and (C) What number of tacos must Matthew sell to make an after tax profit of $400?

Selling Price Per Taco			$7.50
Variable Cost Per Taco			2.25
Total Fixed Costs			$        11,300

Answer 1

(A) Break even point

Break even point = Fixed costs / Contribution margin per unit Contribution margin per unit = Selling price per unit - Variable cost per unit

Contribution margin per unit = $7.50 - $2.25 = $5.25 per unit

Number of tacos Mathew must to sell break even = $11,300 / $5.25 per unit = 2,152 Tacos

(B) Sales units to make a profit of $650

Contribution margin = Fixed cost + Profit

Contribution margin = $11,300 + $650 = $11,950

Number of tacos Matthew must sell to make a profit before tax = Contribution margin / Contribution margin per unit

Number of tacos Matthew must sell to make a profit before tax = $11,950 / $5.25 per unit = 2,276 Tacos

(C) Number of tacos must Matthew sell to make an after tax profit of $400

Profit before tax = $400 / 80% = $500

Contribution margin = Fixed cost + Profit

Contribution margin = $11,300 + $500 = $11,800

Number of tacos Matthew must sell to make a profit before tax = Contribution margin / Contribution margin per unit

Number of tacos Matthew must sell to make a profit before tax = $11,800 / $5.25 per unit = 2,248 Tacos

All the best...