Cove\'s Cakes is a local bakery. Price and cost information follows Price per ca
ID: 2541232 • Letter: C
Question
Cove's Cakes is a local bakery. Price and cost information follows Price per cake Variable cost per cake S 15.01 Direct labor Overhead (box, etc.) 2.32 1.17 0.11 Foced 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 $1.30 per cake. Point cakes b. Fixed costs increase by $530 per month Even Point cakes c. Variable costs decrease by S0.41 per cake d. Sales price decreases by $0.80 per cake cakes 2.Assume that Cove sold 310 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 12 percent increase n sales revenue Round your final answer to 2 decimal places e 1234 should be entered as 12.34% on ProftExplanation / Answer
1.
a. New sales price = $15.01 + 1.30 = $16.31 per unit
Variable cost = $2.32 + 1.17 + 0.11 = $3.60 per unit
Contribution margin = sales price - variable cost
= 16.31 - 3.60
= $ 12.71 per unit
Break-even point = Fixed cost / Contribution Margin per unit
= 3423 / 12.71
= 269.31
Break- even point = 269 cakes
b. Contribution margin = 15.01 - 3.60 = $11.41
New Fixed cost = 3423 + 530 = 3953
Break-even point = Fixed cost / Contribution Margin per unit
= 3953 / 11.41
= 346.45
Break- even point = 346 cakes
c. sales price = 15.01 per unit
New Variable cost = $3.60 - 0.41 = 3.19 per unit
Contribution margin = sales price - variable cost
= 15.01 - 3.19
= $ 11.82 per unit
Break-even point = Fixed cost / Contribution Margin per unit
= 3423 / 11.82
= 290
Break- even point = 290 cakes
d. New sales price = $15.01 - 0.80 = $14.21 per unit
Variable cost = $2.32 + 1.17 + 0.11 = $3.60 per unit
Contribution margin = sales price - variable cost
= 14.21 - 3.60
= 10.61 per unit
Break-even point = Fixed cost / Contribution Margin per unit
= 3423 / 10.61
= 323
Break- even point = 323 cakes
2. Degree of operating leverage = (Sales - VC) / (Sales - VC- FC)
= (4653.10 - 1116) / (4653.10 - 1116 - 3423)
= 3537.10 / 114.10
= 31