Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 13.61 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.25 1.07 0.20 $4,237.80 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 470 cakes per month. 3. Determine the number of cakes that Cove must sell to generate $1,000 in profit.

Answer 1

Total variable cost per cake	3.52	=2.25+1.07+0.20
1
Fixed costs	4237.80
Divide by unit contribution margin	10.09	=13.61-3.52
Break even units	420	Cakes
Break even Sales dollars	5716.20	=420*13.61
2
Margin of safety units	50	=470-420
Margin of safety	680.50 or 681	=50*13.61
3
Fixed costs	4237.80
Add: Target profit	1000.00
Required contribution margin	5237.80
Divide by unit contribution margin	10.09
Target sales units	519	Cakes