Justin Lake operates a kiosk in downtown Chicago, at which he sells one style of baseball hat. He buys the hats from a supplier for $13 and sells them for $18. Justin's current breakeven point is 15,000 hats per year.
a. What is Justin's current level of fixed costs?
b. Assume that Justin's fixed costs, variable costs, and sales price were the same last year, when he made $14,000 in net income. How many hats did Justin sell last year, assuming a 30% income tax rate?
c. What was Justin's margin of safety last year?
d. If Justin wants to earn $17,500 in net income, how many hats must he sell?
e. How many hats must Justin sell to break even if his supplier raises the price of the hats to $14 per hat?
f. What actions should Justin consider in response to his supplier's price increase?
g. Justin has decided to increase his sales price to $20 to offset the supplier's price increase. He believes that the increase will result in a 5% reduction from last year's sales volume. What is Justin's expected net income?