Question

Mrs Jolly always made the wedding cake for family and friends whenever the need arose. Feedback was always very positive and Mrs Jolly began to consider whether or not it would be worth setting up in business. To determine the viability of the project, she has gathered the following budgeted annual information. Selling price per cake £100 Advertising and publicity £2,500 Ingredients per cake £40 Annual salary for an assistant £5,000 Decorations per cake In addition, she would need to invest £10,000 for a dedicated kitchen area in her house for the new venture. TH would last her five years.

Using the information from the photo, what is the minimum number how many wedding cakes would Mrs Jolly need to sell to break even?

A. 173
B. 250
C. 138
D. 95

Answer 1

Advertising and publicity	$   2,500
Add: Annual salary for an assitant	$   5,000
Add: Depreciation expense (10,000/5)	$   2,000
Total fixed costs	$   9,500

Break even units = Total fixed costs / Contribution margin per unit

Break even units = (9,500 / (100 - 40 - 5)

Break even units = 173 Units

Answer is A. 173

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