Question

Cove's Cakes is a local bakery. Price and cost information follows: Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month $2,970.00 Required: 1. Calculate Cove's new break-even point under each of the following independent scenarios a. Sales price increases by $1.60 per cake, b. Foxed costs increase by $490 per month c. Variable costs decrease by $0.30 per cake. d. Sales price decreases by $0.80 per cake. 2. Assume that Cove sold 330 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 7 percent increase in sales revenue Complete this question by entering your answers in the tabs below. 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 $1.60 per cake. b. Fixed costs Increase by $490 per month c. Variable costs decrease by $0.30 per cake, d. Sales price decreases by $0.80 per cake. Show less Break.Even Point 1a Sales price increases by 51.60 per cake cakes

Answer 1

Answer

• All requirements form part of the answer
• Requirement 1

A	Price per cake	$                    15.01
B	Total variable cost per cake	$                       3.51
C = A - B	Contribution margin per cake	$                    11.50
D	Fixed Cost	$              2,970.00
E = D/C	Break Even point	258	Answer [a]
A	Price per cake	$                    13.41
B	Total variable cost per cake	$                       3.51
C = A - B	Contribution margin per cake	$                       9.90
D	Fixed Cost	$              3,460.00
E = D/C	Break Even point	349	Answer [b]
A	Price per cake	$                    13.41
B	Total variable cost per cake	$                       3.21
C = A - B	Contribution margin per cake	$                    10.20
D	Fixed Cost	$              2,970.00
E = D/C	Break Even point	291	Answer [c]
A	Price per cake	$                    12.61
B	Total variable cost per cake	$                       3.51
C = A - B	Contribution margin per cake	$                       9.10
D	Fixed Cost	$              2,970.00
E = D/C	Break Even point	326	Answer [d]

• Requirement 2

A	Price per cake	$                    13.41
B	Total variable cost per cake	$                       3.51
C = A - B	Contribution margin per cake	$                       9.90
D	Total cakes sold	330
E = C x D	Total Contribution margin	$              3,267.00
F	Fixed Cost	$              2,970.00
G = E - F	Net Income	$                  297.00
H = E/G	Degree of Operating Leverage	11.00	Answer

• Requirement 3

A	Change in Sales Revenue	7%
B	Degree of Operating Leverage	11
C = A x B	Effect on Profits	77.00%	Answer