Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake  $  14.41  
Variable cost per cake  
Ingredients  2.28  
Direct labor  1.07  
Overhead (box, etc.)  0.20  
Fixed cost per month  $  4,887.00  
Required:
1. Determine Cove’s breakeven point in units and sales dollars.
2. Determine the bakery’s margin of safety if it currently sells 510 cakes per month.
3. Determine the number of cakes that Cove must sell to generate $1,500 in profit.
Complete this question by entering your answers in the tabs below.
Determine Cove’s breakeven point in units and sales dollars. (Round your BreakEven Units answer to the nearest whole number. Round your other intermediate calculations and sales dollars answer to 2 decimal places.)

Determine the bakery’s margin of safety if it currently sells 510 cakes per month. (Round your intermediate calculations to 2 decimals. Round the breakeven units and final answer to nearest whole dollar.)

Determine the number of cakes that Cove must sell to generate $1,500 in profit. (Round your intermediate calculations to 2 decimal places and final answer to nearest whole number.)

1.
Selling price per unit = $14.41
Variable cost per unit = Ingredients + Direct labor + Overhead (box, etc.)
= 2.28 + 1.07 + 0.20
= $3.55
Contribution margin per unit = Selling price per unit – Variable cost per unit
= 14.41  3.55
= $10.86
Contribution margin ratio = Contribution margin per unit/Selling price per unit
= 10.86/14.41
= 75.36%
Break even point (units) = Fixed cost/Contribution margin per unit
= 4,887/10.86
= 450
Break even sales in dollars = Fixed cost/Contribution margin ratio
= 4,887/75.36%
= $6,484.87
2.
Margin of safety in dollar sales = Present sales  Break even sales
= 510 x 14.41  6,484.87
= 7,349  6,484.87
= $864
3.
Units to be sold to get a target profit = (Fixed cost + Target profit)/Contribution margin per unit
= (4,887 + 1,500)/10.86
= 6,387/10.86
= 588
Target Sales Units  588  Cakes 
Please ask if you have any query related to the question. Thank you
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