Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 13.31 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.33 1.12 0.27 $4,315.50 Required: 1. Determine Cove's break-even point in units and sales dollars. (Round your Break-Even Units answer to the nearest whole number. Round your other intermediate calculations and sales dollars answer to 2 decimal places.) Cakes Break-Even Units Break-Even Sales Dollars 2. Determine the bakery's margin of safety if it currently sells 540 cakes per month. (Round your intermediate calculations to 2 decimals. Round the break-even units and final answer to nearest whole dollar.) Margin of Safety

Answer 1

Contribution margin per cake = 13.31-3.72 = 9.59

a) Break even unit = Fixed cost/Contribution margin per cake = 4315.50/9.59 = 450 Units

Break even sales = 450*13.31 = $5989.50

b) Margin of safety = 540-450 = 90 Units

Margin of safety (dollars) = (540-450)*13.31 = 1197.90 or $1198

c) Target sales units = (4315.50+1200)/9.59 = 575 Units