Wei Wong is a young entrepreneur preparing to start a company that will sell floating lounge chairs

Question:

Wei Wong is a young entrepreneur preparing to start a company that will sell floating lounge chairs for use in private pools. As part of a loan package, the bank has asked him to prepare a business plan that includes a breakeven analysis. The lounge chairs will sell for $64 each and variable costs per unit are expected to be $40. Wei anticipates incurring $600,000 in fixed costs per year.

Required
a. What is the expected per lounge chair?
b. Based on his projections, how many lounge chairs must Wei sell to break even?
c. If Wei wants to generate annual operating income of $54,000, how many lounge chairs must he sell?
d. Assuming the company’s tax rate is 35%, how many lounge chairs must the company sell to generate annual net income of $71,136?

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...