Cove’s Cakes is a local bakery. Price and cost information follows: Price per ca
ID: 2542557 • Letter: C
Question
Cove’s Cakes is a local bakery. Price and cost information follows:
Price per cake $ 13.71
Variable cost per cake Ingredients 2.29
Direct labor 1.08
Overhead (box, etc.) 0.27
Fixed cost per month $ 4,330.10
Required: 1. Determine Cove’s break-even point in units and sales dollars. (Round your Break-Even Units answer to the nearest whole number. Round your other intermediate calculations and sales dollars answer to 2 decimal places.)
2. Determine the bakery’s margin of safety if it currently sells 500 cakes per month. (Round your intermediate calculations to 2 decimals. Round the break-even units and final answer to nearest whole dollar.)
3. Determine the number of cakes that Cove must sell to generate $2,300 in profit. (Round your intermediate calculations to 2 decimal places and final answer to nearest whole number.)
Explanation / Answer
1) Contribution margin per unit = 10.07
Break even point in units = 4330.10/10.07 = 430 cakes
Break even point in dollar sales = 430*13.71 = 5895.30
2) Margin of safety = 500-430 = 70 cakes
Margin of safety sales = 70*13.71 = 959.70
3) Required sales = (2300+4330.10)/10.07 = 658 cakes