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Jack's Jax has total fixed costs of $25,000. If the company's contribution margin is 60%, the...

Jack's Jax has total fixed costs of $25,000. If the company's contribution margin is 60%, the income tax rate is 25% and the selling price of a box of Jax is $20, how many boxes of Jax would the company need to sell to produce a net income of $15,000? Explain your answer.

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Answer #1

Net Income = $ 15,000

Hence, Income Before Tax =$ 15,000 / (100%- 25%) * 100%

= $ 20,000

Required Net Income = $ 20,000

Add: Fixed Cost = $ 25,000

Required Contribution Margin = $ 45,000

Contribution Margin Per Unit = Selling Price * Contribution Margin Ratio

= $ 20 * 60%

= $ 12

Hence, Units to be sold to produce the required net income = Contribution Margin Required / Contribution Margin Per Unit

= $ 45,000 /$ 12 Per Unit

= 3,750 Boxes

Hence the correct answer is 3,750 Boxes

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