Question

Cove's Cakes is a local bakery. Price and cost information follows: $ 13.01 Price per cake Variable cost per cake Ingredients Direct labor Overhead (box, etc.) Fixed cost per month 2.15 1.03 0.23 $3,360.00 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 $480 per month. c. Variable costs decrease by $0.30 per cake. d. Sales price decreases by $0.40 per cake. 2. Assume that Cove sold 375 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3

Answer 1

answers break even point break even point break even point break even point degree of operating leverage chage in profit (dollars) 4402 5204 4539 4605 15 WN 252

explanation

1a) sales price increased by 1.40 per cake selling price per cake 14.41 variable costs ingedients 2.15 direct labor 1.03 overhead 0.23 total variable cost per unit 3.41 fixed cost per month 3,360 break even point = fixed cost/(selling price- variable cost )*selling price 4402

1b)fixed cost increased by 480 per month selling price per cake 13.01 variable costs ingedients 2.15 direct labor 1.03 overhead 0.23 total variable cost per unit 3.41 fixed cost per month 3,840 break even point 5204

1c) variable costs decreased by 0.30 per cake selling price per cake 13.01 variable costs total variable cost per unit 3.38 fixed cost per month 3,360 break even point 4539

1d)sales price decreased by 0.40 per cake selling price per cake 12.61 variable costs ingedients 2.15 direct labor 1.03 overhead 0.23 total variable cost per unit 3.41 fixed cost per month 3,360 break even point 4605

assume sold 375 cakes last month selling price per cake 4878.75 variable costs ingedients 806.25 direct labor 386.25 overhead 86.25 total variable cost per unit 1278.75 contribution margin 3600 fixed cost per month 3,360 operating profit 240 2) degree of operating leverage = contribution margin / operating profit 15 3) change in profit = 7%*15*240 252

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