Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 14.61 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.32 1.02 0.28 $3,297.00 Required: 1. Calculate Cove's new break-even point under each of the following independent scenarios: a. Sales price increases by $1.70 per cake. b. Fixed costs increase by $515 per month. c. Variable costs decrease by $0.32 per cake. d. Sales price decreases by $0.70 per cake. 2. Assume that Cove sold 310 cakes last month. Calculate the company's degree of operating leverage. 3. Using the degree of operating leverage, calculate the change in profit caused by a 15 percent increase in sales revenue. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Calculate Cove's new break-even point under each of the following independent scenarios: (Round your answers to the nearest whole number.) a. Sales price increases by $1.70 per cake. b. Fixed costs increase by $515 per month. c. Variable costs decrease by $0.32 per cake. d. Sales price decreases by $0.70 per cake.

Answer 1

Q1
a.
Sales price (increase by 1.70)	$        16.31
Less:
Ingredients	$          2.32
Direct labor	$          1.02
overhead	$          0.28
contribution margin per unit	$        12.69
Fixed cost per month	$        3,297
Break even point (fixed cost/contribution margin)	260
b.
Sales price	$        14.61
Less:
Ingredients	$          2.32
Direct labor	$          1.02
overhead	$          0.28
contribution margin per unit	$        10.99
Fixed cost per month(increase 515)	$        3,812
Break even point (fixed cost/contribution margin)	347
c.
Sales price	$        14.61
Less:
Ingredients	$          2.32
Direct labor	$          1.02
overhead	$          0.28
decrease in VC	$         (0.32)
contribution margin per unit	$        11.31
Fixed cost per month	$        3,297
Break even point (fixed cost/contribution margin)	292
d.
Sales price(decrease by 0.70)	$        13.91
Less:
Ingredients	$          2.32
Direct labor	$          1.02
overhead	$          0.28
contribution margin per unit	$        10.29
Fixed cost per month	$        3,297
Break even point (fixed cost/contribution margin)	320
Ques 2
Units	310
Sales price	$        14.61	$       4,529
Less:
Ingredients	$          2.32	$          719
Direct labor	$          1.02	$          316
overhead	$          0.28	$            87
contribution margin(a)	$        10.99	$       3,407
Less:
Fixed cost		$       3,297
Income(b)		$          110
Operating leverage (a/b)		31
Ques 3
change in profit (15%*31)	465%