Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 14.11 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.34 1.18 0.23 $4,765.60 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 500 cakes per month. 3. Determine the number of cakes that Cove must sell to generate $2,700 in profit.

Answer 1

Correct Answer:

Break Even in Volume (units)	460.00
Breakeven sales in dollars	$                                     6,490.60

margin of safety on selling 500 units	$    564
% of margin of safety	8.00%

Volume (units) required to earn $16000 profit

721

Working;

Calculation of Contribution per unit
A	Selling price per unit	$                                           14.11
B	Variable cost per unit (2.34 + 1.18 + 0.23 )	$                                              3.75
C=A-B	Contribution margin per unit	$                                           10.36
D	Fixed Cost	$                                     4,765.60

Calculation of Margin of safety
D	Fixed Cost	$                                     4,765.60
C	Contribution margin per unit	$                                           10.36
E =D/C	Break Even in Volume (units)	460.00
F= E * A	Breakeven sales in dollars	$                                     6,490.60
G = 500 * A	Sales value at 500 units	$                                     7,055.00
H=G-F	margin of safety	$                                               564
I =H/G *100	% of margin of safety	8.00%
J	Required profit	$                                     2,700.00
D	Fixed Cost	$                                     4,765.60
K=D+J	Contribution margin required	$                                     7,465.60
C	Contribution margin per unit	$                                           10.36
E=K/C	Volume (units) required to earn $ 2700 profit	720.62

End of answer.

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