Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 14.01 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.29 1.09 0.28 $4,864.50 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 560 cakes per month. 3. Determine the number of cakes that Cove must sell to generate $1,900 in profit. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 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

Answer 1

Solution :- 1.Calculation of Cove's Breakeven Point in Units and Dollar Sales :-

Selling Price per cake	$ 14.01
Less : Variable Cost per cake Ingredients = $ 2.29 Direct Labor = $ 1.09 Overhead = $ 0.28	$ 3.66
Contribution Margin per Unit	$ 10.35
Contribution Margin Ratio = Contribution Margin per unit / Selling price per unit *100	$ 10.35/$ 14.01 *100 = 73.88%

Break Even Point in Units = Fixed Costs / Contribution Margin per Unit

= $ 4864.50 / $ 10.35 = 470 Cakes

Break Even Point in Sales Dollars = Fixed Costs / Contribution Margin Ratio

= $ 4864.50 / 73.88%   = $ 6584.33

2. Calculation of Bakery's Margin of Safety :-

Margin of Safety = Current Sales - Break Even sales

Current Sales = 560 Cakes * $ 14.01 = $ 7845.6

Break Even Sales = $ 6584.33

Margin of Safety (in sales dollars) = $ 7845.60 - $ 6584.33 = $ 1261.27

Margin of Safety ( in Units ) = 560 Cakes - 470 Cakes = 90 Cakes

3. Calculation of the number of cakes to generate $ 1900 in profit :-

Target Profit = $ 1900

Fixed Costs = $ 4864.50

Contribution Margin = Target Profit + Fixed Costs

= $ 1900 + $ 4864.50 = $ 6764.50

Contribution Margin per Unit = $ 10.35 [Computed in Part 1]

Number of Cakes to generate target profit = Total Contribution Margin / Contribution Margin per unit

= $ 6764.50 / $ 10.35 = 654 Units

Therefore , Cove must sell 654 Cakes to generate $ 1900 in profit.