Refer to Exercise 3-3. In Exercise 3-3 Julianna Abdallah owns and operates FirstCakes, a bakery that creates

Question:

Refer to Exercise 3-3.

In Exercise 3-3

Julianna Abdallah owns and operates FirstCakes, a bakery that creates personalized birthday cakes for a child's first birthday. The cakes, which sell for $40 and feature an edible picture of the child, are shipped throughout the country. A typical month's results are as follows

Sales revenue .................................$840,000

Variable expenses............................. 630,000

Contribution margin ......................... 210,000

Fixed expenses ............................... 112,000

Operating income ........................... $ 98,000

Required

a. How many cakes will Julianna Abdallah have to sell if she wants to earn $150,000 in operating income each month?

b. Assuming a 30% tax rate, how many cakes will Julianna Abdallah have to sell if she wants to earn $115,150 in net income each month?

Contribution Margin
Contribution margin is an important element of cost volume profit analysis that managers carry out to assess the maximum number of units that are required to be at the breakeven point. Contribution margin is the profit before fixed cost and taxes...