Question

mework, Part 2 Saved Cove's Cakes is a local bakery. Price and cost information follows: $ 13.21 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.16 1.05 0.27 $3,502.80 Required: 1. Calculate Cove's new break-even point under each of the following independent scenarios: a. Sales price increases by $1.20 per cake. b. Fixed costs increase by $505 per month. c. Variable costs decrease by $0.26 per cake. d. Sales price decreases by $0.30 per cake. 2. Assume that Cove sold 390 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 9 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 $1.20 per cake

Answer 1

Break even point in units = Fixed costs/(Selling price per unit – Variable cost per unit)

a. Sale Price Increases, break even point = 3,502.80/(13.21+1.20-2.16-1.05-0.27)

= $320.48 cakes

i.e. 320 cakes

b.Fixed cost increases = (3502.80+505)/9.73

= 412 cakes

c.Variable cost decreases = 3502.80/9.99

= 351 cakes

d.Sales price decreases = 3502.80/9.43

= 371 cakes

2.Degree of Operating leverage = Contribution Margin/Operating Income

= 9.73*390/(9.73*390-3502.80)

= 3794.7/291.9

= 13 times

3.% increase in profit = % increase in Sales*DOL

= 9%*13

= 117%