Question

$ 13.01 2.24 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 1.13 0.12 $3,332.00 Required: 1. Calculate Cove's new break-even point under each of the following independent scenarios: (Round your answer to the nearest whole number.) a. Sales price increases by $1.30 per cake. Break-Even Point cakes b. Fixed costs increase by $520 per month. Break-Even Point cakes c. Variable costs decrease by $0.41 per cake. Break-Even Point cakes d. Sales price decreases by $0.40 per cake. Break-Even Point cakes 2. Assume that Cove sold 365 cakes last month. Calculate the company's degree of operating leverage. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Degree of Operating Leverage 3. Using the degree of operating leverage calculated in Requirement 2, calculate the change in profit caused by a 8 percent increase in sales revenue. (Round your final answer to 2 decimal places (i.e. .1234 should be entered as 12.34%.)) Effect on Profit

Answer 1

The answer has been presented in the supporting sheet . All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

1 Answer 2 3 Part 1) 4 a 5 Sale Price increase by $ 1.3 6 Break even point fixed cost/revised contribution margin per unit 7 $3332/(13.01-2.24-1.13-.12+1.3) 8308 Cakes 10 Thus the correct answer is 308 Cakes 11 12 b) 13 Fixed cost increase by $520 14 Break even point revised fixed cost/contribution margin per unit 15 ($3332+520)/(13.01-2.24-1.13-.12) 16405 Cakes 17 Thus the correct answer is 405 Cakes 18 19 C) 20 Variable cost decrease by $0.41 21 Break even point fixed cost / revised contribution margin per unit 22 =$3332/(13.01-2.24-1.13-.12+.41) 23336 Cakes 24 25 Thus the correct answer is 336 Cakes Sheet8 Sheet9 Sheet10 Sheet11 Sheet12 Sheet13 Sheet14

7 D) 8Sale Price Decrease by $0.4 9 Break even point fixed cost/ revised contribution margin per unit 0$3332/(13.01-2.24-1.13-.12-4) 1 365 Cakes 2 3 Thus the correct answer is 365 Cakes 4 5 Part 2) 6 Degree of operating leverage contribution margin/ net operating income 7 -(365*(13.01-2.24-1.13-.12))/((365*(13.01-2.24-1.13-.12))-3332) 824.33 0 Thus the correct answer is 24.33 -1 2 Part 3) 3 Effect on Profit operating leverage*increase in sales 424.33 8 5 194.64% -6 7 Thus the correct answer is 194.64% 8