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

Answer 1

Answer:

variable cost ratio = ( variable expense / sales ) * 100 = ( $651,840 / $869,120 ) * 100 = 75%

For calculating the required number of cakes to sell to earn a net income of $144,704, we have to first calculate the required sales revenue.

Required net income =[required sales revenue - variable cost - fixed costs] * (1 - tax%)

Let us assume R be the required sales revenue. Variable cost ratio is 75%, means the variable cost will be 0.75R.

Now let us put amounts in the above equation:

$144,704 = [ R - 0.75R - $117,280 ] * (1-30%)

$144,704 = [ 0.25R - $ 117,280 ] * (1-0.3)

$144,704 = [ 0.25R - $117,280 ] * 0.7

$144,704 / 0.7 = 0.25R - $117,280

$206,720 = 0.25R - $117,280

$206,720 + $117,280 = 0.25R

0.25R = $324,000

R = $324,000 / 0.25

R = $1,296,000

So, the required sales revenue to earn a net income of $144,704 is $1,296,000.

The price of each cake is $64.

So the number of cakes to be sold = required sales revenue / price per cake = $1,296,000 / $64 = 20,250 cakes

Julianna Abdallah will have to sell 20,250 cakes to earn a net income of $144,704.