If Cat and Joe wish to make a $100,000 profit for the year (after tax), how many
ID: 2712137 • Letter: I
Question
If Cat and Joe wish to make a $100,000 profit for the year (after tax), how many pulled pork sandwiches must the Pig Rig sell each day?
(Please show work)
- Fixed costs included items such as gas for the generator, maintenance, business licenses, and truck depreciation. These costs totaled $10,000 per year. The operational year for the food truck was 180 days. Corporate income tax rates for small businesses in British Columbia were approximately 20% around that time.
- The company had variable costs, which included the cost of the food, clamshell packaging, and variable overhead. Variable costs were 40% of the company’s revenues. There was no labor cost as neither Joe nor Cat drew a wage or salary.
- On a typical day, Cat and Joe served between 75 and 125 patrons, with an average of 100.
- “Ripped Pig” pulled pork sandwich, coleslaw, baked beans, and French fries for $12.
Explanation / Answer
Fixed cost per day = Annual fixed cost / NO. of working days
= 10,000/ 180
= 55.556
Contribution margin per unit = Selling price – variable cost per unit
=12 –(12x0.40)
= 12-4.80
= 7.20
Before tax desired annual income = Income after taxes / (1- tax rate)
= 100,000/(1-0.20)
= 125000
Desired pretax income per day = Before tax desired annual income/ working days
= 125,000/180
= 694.444
Daily sale units for desired profit = (Fixed cost per day+ Desired pretax income per day )/ contribution margin per unit
=(55.556+694.444)/ 7.20
=104.17 units