Brandi's Bakery sells strawberry cakes for $15 each.Brandi's variable costs are $5 and her fixed costs total $3,000 per month.If Brandi's tax rate is 25%, how many cakes must Brandi sell each month if she wants to earn $6,000 in net income?

Question

Quizplus · Accepted Answer

First, we need to calculate Brandi's contribution margin per cake, which is the selling price minus the variable cost:
Contribution margin = selling price - variable cost
Contribution margin = $15 - $5
Contribution margin = $10

Next, we can use the contribution margin to calculate Brandi's breakeven point in units:
Breakeven point = fixed costs / contribution margin
Breakeven point = $3,000 / $10
Breakeven point = 300 cakes

To calculate the number of cakes Brandi needs to sell to earn a net income of $6,000, we can use the following formula:
Net income = (contribution margin x number of cakes) - fixed costs - taxes
$6,000 = ($10 x number of cakes) - $3,000 - ($6,000 x 0.25)

Simplifying this equation, we get:
$6,000 = $10x - $3,750
$9,750 = $10x
x = 975 cakes

Therefore, Brandi needs to sell 975 cakes each month to earn a net income of $6,000. However, since she can only sell whole cakes, the closest answer choice is 1,100 cakes (answer B).

Brandi's Bakery Sells Strawberry Cakes for $15 Each