Cove’s Cakes is a local bakery. Price and cost information follows: Price per ca
ID: 2534279 • Letter: C
Question
Cove’s Cakes is a local bakery. Price and cost information follows: Price per cake $ 14.71 Variable cost per cake Ingredients 2.22 Direct labor 1.10 Overhead (box, etc.) 0.21 Fixed cost per month $ 4,024.80
Required: 1. Calculate Cove’s new break-even point under each of the following independent scenarios: (Round your answer to the nearest whole number.)
a. Sales price increases by $1.80 per cake.
b. Fixed costs increase by $480 per month.
c. Variable costs decrease by $0.43 per cake.
d. Sales price decreases by $0.40 per cake.
2. Assume that Cove sold 380 cakes last month. Calculate the company’s degree of operating leverage. (Do not round intermediate calculations. Round your answer to 4 decimal places.)
3. Using the degree of operating leverage calculated in Requirement 2, calculate the change in profit caused by a 11 percent increase in sales revenue. (Round your final answer to 2 decimal places (i.e. .1234 should be entered as 12.34%.))
Break-Even Point cakesExplanation / Answer
price per cake 14.71 Variable cost per cake ingredients 2.22 Direct labor 1.1 overhead 0.21 3.53 Contribution margin per cake 11.18 Break even point(units) = fixed cost/contribution margin per unit 1a) when sale increases by $1.80 per cake contribution will also increase by the same amount 4024.80/(11.18+1.8) BEP 310 Cakes answer b) fixed cost increase by 480per month (4024.8+480)/11.18 403 BEP 403 Cakes answer c) Variable cost decrease by 0.43 per caje leading to increase in contribution (4024.8)/(11.18+.43) 347 BEP 347 Cakes answer d) when sale decreases by $.40 per cake contribution will also decrease by the same amount 4024.8/(11.18-.40) BEP 373 Cakes answer 2) contibution (380*11.18)= 4248.4 less fixed cost -4024.8 net income 223.6 degree of operating leverage = contribution/net income 4248.4/223.6 19.0000 3) Effect on profit = increase of sales revenue *degree of operating leverage 11%*19 209 % Effect on profit 209%