Corner Cupcakes Co. is selling cupcakes for $10 for a box of one dozen. Corner has fixed costs equaling $120,000 per year, and its accounting firm has determined the contribution margin ratio on each box of donuts to be 50%. Corner is currently averaging monthly sales of 2,500 boxes of donuts, and the company has a tax rate of 25%. Based on this information, Corner Cupcakes has been averaging monthly net income of

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2,500 boxes times $10 per box is equal to $25,000 of sales revenues. If the contribution margin is 50%, then contribution margin in dollars is equal to $25,000 × 50% = $12,500. Subtracting fixed costs of $10,000 per month ($120,000 per year ÷ 12 months) results in operating income of $2,500. If the company has at a 25% tax rate, then taxes will equal $2,500 × 25% = $625. Subtracting the tax amount from operating income results in net income of $2,500 F1F1F1S1?F1F1F10 $625 = $1,875.