This is the inaugural year of the Craft Beer Club for beer lovers. For $43 annual fee, the Craft Beer Club will send three bottles of each of the four different craft beers to your doorstep (12 bottles annually). Each bottle of beer has a cost of $1.75.

The fixed marketing cost is $72,000 annually.

Monthly fixed costs are $24,530.

How many subscribers does the Craft Beer club need to sign up annually to earn $60,000 of Profit?

Hint: Prove out your subscriber volume by creating a Contribution Margin Income Statement

Question

This is the inaugural year of the Craft Beer Club for beer lovers.  For $43 annual fee, the Craft Beer Club will send three bottles of each of the four different craft beers to your doorstep (12 bottles annually).  Each bottle of beer has a cost of $1.75.

The fixed marketing cost is $72,000 annually.

Monthly fixed costs are $24,530.

How many subscribers does the Craft Beer club need to sign up annually to earn $60,000 of Profit?

Hint: Prove out your subscriber volume by creating a Contribution Margin Income Statement

BlackTom AI · Accepted Answer

We start by restating the problem to ensure we understand all pieces: a subscription service charges $43 per year, delivers 12 bottles per subscriber (three bottles of each of four beers), each bottle costs the company $1.75, there are fixed costs of $72,000 annually plus monthly fixed costs of $24,530, and the goal is to earn $60,000 in profit.

Optionally, we first compute the relevant figures:
- Annual revenue per subscriber: $43.
- Annual cost of goods sold (COGS) per subscriber: 12 bottles × $1.75 per bottle = $21.00.
- Contribution margin (CM) per subscriber: $43 − $21 = $22.00. This is the amount each subscriber contributes toward fixed costs and profit.
- Annual fixed costs: fixed marketing cost $72,000 plus 12 months of $24,530 = 72,000 + (24,530 × 12) = 72,000 + 294,360 = $366,360.
- Total required contribution to cover fixed costs and profit: fixed costs $366,360 plus desired profit $60,000 = $426,360.

Now we determine the required number of subscribers:
- Required subscribers = Total required contribution ÷ CM per subscriber = $426,360 ÷ $22 = 19,380 subscribers (exactly, since 22 × 19,380 = 426,360).

Proceeding to evaluate each answer choice:
- Option A: 18,521. If we compute 18,521 × $22 CM per subscriber, we get 18,521 × 22 = 407,462, which is less than the required $426,360. This would leave a shortfall in profit, so this is incorrect.
- Option B: 17,644. 17,644 × 22 = 388, - wait, compute precisely: 17,644 × 22 = 387,208. This is far below the needed contribution, so this cannot reach the target profit. Incorrect.
- Option C: 19,380. 19,380 × 22 = 426,360, which exactly covers the fixed costs and achieves the $60,000 profit goal. This matches the calculation above. This is the correct choice.
- Option D: 16,653. 16,653 × 22 = 366,366. This is below the required $426,360 contribution, so it would not reach the profit target. Incorrect.

In summary, we used the contribution margin approach to translate the profit objective into a required level of activity (subscribers). The math shows that 19,380 subscribers provide the exact CM needed to cover fixed costs and achieve $60,000 in profit, while the other options fall short of that target.

2025FA_IMC_402-0_SEC20 Final Exam

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