Question

mnect-5 0 Saved Cove's Cakes is a local bakery. Price and cost information follows: $ 17.00 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.50 1.40 0.20 $3,850.00 Print ferences Required: 1. Determine Cove's break-even point in units and sales dollars. 2. Determine the bakery's margin of safety if it currently sells 450 cakes per month. 3. Determine the number of cakes that Cove must sell to generate $2,000 in profit. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Determine the bakery's margin of safety if it currently sells 450 cakes per montit (Round your intermediate calculations to 2 decimals and use the break-even units calculated in Requirement 1.) Margin of Safety < Required 1 Required 3 > < Prev 2 of 3 :: Next >

Answer 1

1. For break even point, we need to calculate contribution margin per unit and contribution margin ratio as per below:

Contribution margin per unit = Selling price per unit - Variable cost per unit

Putting the values in the above formula, we get,

Contribution margin per unit = $17 - ($2.5 + $1.4 + $0.2)

Contribution margin per unit = $17 - $4.1 = $12.9

Contribution margin ratio = Contribution margin per unit / Selling price per unit

Contribution margin ratio = $12.9 / $17 = 0.76

Now, we will calculate break even point in dollars as per below

Break even point in dollars = Fixed cost / Contribution margin ratio

Break even point in dollars = $3850 / 0.76 = $5065.79

Break even point in units = Fixed cost / Contribution margin per unit

Break even point in units = $3850 / $12.9 = 298.45

2. Sales = 450 units * $17 per unit = $7650

Break even point in dollars = $5065.79 (as calculated in point (1))

Margin of safety = Sales - Break even point in dollars

Margin of safety = $7650 - $5065.79 = $2584.21

3. Number of units required to generate $2000 profit = Fixed cost + $2000 / Contribution margin per unit

Putting the values in the above formula, we get,

Number of units required = ($3850 + $2000) / $12.9

Number of units required = $5850 / $12.9 = 453.49