Question

9 Cove's Cakes is a local bakery. Price and cost information follows: $ 15.01 1.36 points Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.30 1.es 9.17 $5,655.60 eBook Print Required: 1. Calculate Cove's new break-even point under each of the following independent scenarios: a. Sales price increases by $1.40 per cake. b. Fixed costs increase by $475 per month. c. Variable costs decrease by $0.28 per cake. d. Sales price decreases by $0.50 per cake. 2. Assume that Cove sold 455 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 7 percent increase in sales revenue. References

Answer 1

	(a)	(b)	(c)	(d)	(e)
Price	$           15.01	$        16.41	$        15.01	$        15.01	$        14.51
Less
Ingredients	$              2.30	$          2.30	$          2.30
Direct Labour	$              1.05	$          1.05	$          1.05
Overhead	$              0.17	$          0.17	$          0.17
Total Variable Cost	$              3.52	$          3.52	$          3.52	$          3.24	$          3.52
Contribution	$           11.49	$        12.89	$        11.49	$        11.77	$        10.99
Fixed Cost	$     5,055.60	$ 5,055.60	$ 5,530.60	$ 5,055.60	$ 5,055.60
Break-even Point	440.00	392.21	481.34	429.53	460.02

(2)

Degree of Operating Leverage = Contribution / (Contribution - Fixed cost )

= 5,227.95 / 172.35

= 30.3x

(3) Increase in sales of 7% will lead to increase in Net profit by 212.33% (30.3*7%)