Tammy's Totes sells hand-made tote bags for $10 each.Tammy's variable costs are $6 per bag and her fixed costs total $4,000 per month.If Tammy's tax rate is 20%, how many totes must Tammy sell each month if she wants to earn $5,000 in net income?

Question

Quizplus · Accepted Answer

Tammy's total costs are $6 per bag variable costs + $4,000 fixed costs = $4,006 per bag.To earn $5,000 in net income, Tammy needs to earn $5,000 / (1 - 0.20) = $6,250 in gross income.To earn $6,250 in gross income, Tammy needs to sell $6,250 / $10 = 625 bags.Therefore, Tammy needs to sell 625 bags each month to earn $5,000 in net income.

Tammy's Totes Sells Hand-Made Tote Bags for $10 Each