Question

Textbook 1 Page 22 2. Gobblecakes is a bakery that specializes in cupcakes. The annual fixed cost to make cupcakes is $18,000. The variable cost including ingredients and labor to make a cupcake is $0.90. The bakery sells cupcakes for $3.20 apiece. a. If the bakery sells 12,000 cupcakes annually, determine the total cost, total revenue, and profit. b. How many cupcakes will the bakery need to sell in order to break even? 5. Graphically illustrate the break-even volume for the Gobblecakes bakery determined in Problem 2. 8. If the maximum operating capacity of the Gobblecakes bakery described in Problem 2 is 12,000 cupcakes annually, determine the break-even volume as a percentage of that capacity. 11. If the Gobblecakes bakery in Problem 2 changes the selling price for a cupcake from $3.20 to $2.75, what effect will the change have on the break-even volume?

Answer 1

2.

a)Total cost = (12,000 x 0.90) + 18,000

=28,800

Total Revenue = 12,000 x 3.2 = 38,400

Profit = 38,400- 28,800 = 9,600

b)Break even sales = 18,000/(3.2 - 0.90)

=7,826.087

8)Break even volume in capacity = 7,826.087/12,000

=65.22%

11) Break even volume = 18,000/(2.75 - 0.90)

=9,729.73