Question

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 break-even 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.

• Required 1
• Required 2
• Required 3

Determine Cove’s break-even point in units and sales dollars. (Round your Break-Even Units answer to the nearest whole number. Round your other intermediate calculations and sales dollars answer to 2 decimal places.)

Break-Even Units		Cakes
Break-Even Sales Dollars

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

	Margin of Safety ($)

• Required 1
• Required 2
• Required 3

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.)

Target Sales Units

Cakes

Answer 1

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