Question

Delectable Dish Printery publishes the best-selling Captain Cajun Cookbook that sells for $10. The company incurs variable costs of $2 per cookbook and total fixed costs are $278,100. If the company’s tax rate is 25%, how many cookbooks must be sold to generate $548,205 in net income? (Use contribution margin per unit to calculate the answer.)

Answer 1

Selling price per unit = $10

Variable cost per unit = $2

Contribution margin per unit = Selling price per unit – Variable cost per unit

= 10 - 2

= $8

Net income = $548,205

Before tax income = Net income/(1 - Tax rate)

= 548,205/(1 - 0.25)

= 548,205/0.75

= $730,940

Fixed costs = $278,100

Units to be sold to get a target profit = (Fixed cost + Target profit)/Contribution margin per unit

= (278,100 + 730,940)/8

= 1,009,040/8

= 126,130

Hence, 126,130 cookbooks must be sold to generate $548,205 in net income.