Coves Cakes is a local bakery. Price and cost information follows Price per cake
ID: 2534765 • Letter: C
Question
Coves Cakes is a local bakery. Price and cost information follows Price per cake Variable cost per cake $14.41 2.23 1.17 0.30 $4,069.80 Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 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 $2.10 per cake Break-Even Point cakes b. Fixed costs increase by $530 per month Break-Even Point cakes c. Variable costs decrease by $0.25 per cake eaK-Even cakes oin d. Sales price decreases by $0.30 per cake eaK-Even cakes oinExplanation / Answer
Break even units = Fixed cost/ contribution margin per unit
1. a) sales price = $ 14.41 + 2.10 = $ 16.51
Less variable cost. $ 3.7
Contribution margin =. $ 12.81
Break even units = $ 4069.80 / 12.81 = 318 cakes
b) if fixed cost increases by $ 530
Fixed cost = $ 4069.80 + 530 = $ 4599.8
Contribution margin $ 14.41 - 3.7 = 10.71 per unit
Break even units = 4599.8/10.71 = 429.48 or 429 cakes
c) If Variable cost decrease by $ 0.25
Contribution margin = $ 14.41 - (3.7-0.25) = $ 10.96
Break even units = 4069.8/10.96 = 371 units
d) If sales price decrease by 0.30
New sales price = 14.41-0.30 = $ 14.11
Contribution margin = 14.11 - 3.7 = $ 10.41
Break even units = 4069.8/10.41. = 391 cakes
2.
a) Degree of operating leverage is = % change in EBIT/ % change in sales so here it will
(Sales - Variable cost) / (Sales less - Variable cost - fixed cost)
OR = Contribution/ Net Income
If sales is 395 cakes
Sales = 395*$ 14.41 = $ 5691.95
Variable cost = 395*3.7 = $ 1461.5
Degree of operating leverage = $ (5691.95 - 1461.5)/(5691.95-1461.5-4069.8)
= $ 4230.45/160.65
= 26.33
b) If sales increases by 6 %
The profits will be increase by 26.33 * 6 = 158%