Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 13.41 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.26 1.14 0.11 $2,970.00 Required: 1. Calculate Cove's new break-even point under each of the following independent scenarios: a. Sales price increases by $1.30 per cake. b. Fixed costs increase by $460 per month. c. Variable costs decrease by $0.27 per cake. d. Sales price decreases by $0.40 per cake. 2. Assume that Cove sold 325 cakes last month. Calculate the company's degree of operating leverage. 3. Using the degree of operating leverage, calculate the change in profit caused by a 11 percent increase in sales revenue. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Calculate Cove's new break-even point under each of the following independent scenarios: (Round your answers to the nearest whole number.) a. Sales price increases by $1.30 per cake. b. Fixed costs increase by $460 per month. c. Variable costs decrease by $0.27 per cake. d. Sales price decreases by $0.40 per cake.

Answer 1

	price per cake				13.41
	Variable cost per cake
	ingredients			2.26
	Direct labor			1.14
	overhead			0.11	3.51
	Contribution margin per cake				9.9
	break even = fixed cost/contribution per unit
1a)	when sale increases by $1.30 per cake
	contribution will also increase by the same amount
		2970/(9.9+1.3)
	BEP	265	Cakes	answer
b)	fixed cost increase by 460 per month
	(2970+460)/9.9
	346
	BEP	346	Cakes	answer
c)	Variable cost decrease by 0..27 per caje
	leading to increase in contribution
	(2970)/(9.9+.27)
	292
	BEP	292	Cakes	answer
d)	when sale decreases by $..40 per cake
	contribution will also decrease by the same amount
		2970/(9.9-.4)
	BEP	313	Cakes	answer
2)	contibution (325*9.9))=			3217.5
	less fixed cost			-2970
	net income			247.5
	degree of operating leverage = contribution/net income
				247.5/3217.5
				13.0000
3)	Effect on profit =		increase of sales revenue *degree of operating leverage
			13*11%
			143	%
	Effect on profit		143%