Question

Cove’s Cakes is a local bakery. Price and cost information follows:

Price per cake

$

14.11

Variable cost per cake

Ingredients

2.29

Direct labor

1.06

Overhead (box, etc.)

0.12

Fixed cost per month

$

4,894.40

Required:
1. 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

2. Determine the bakery’s margin of safety if it currently sells 540 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

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

Target Sales Units

Cakes

Answer 1

1. Determine Cove’s break-even point in units and sales dollars.

Break even point (units) = 4894.40/(14.11-3.47) = 460 Cakes

Break even point (dollar sales) = 460*14.11 = 6490.60

2. Determine the bakery’s margin of safety if it currently sells 540 cakes per month.

Margin of safety = Actual sales-break even sales

= 540-460

Margin of safety = 80 Cakes

3. Determine the number of cakes that Cove must sell to generate $2,500 in profit.

Target units sales = (4894.40+2500)/(14.11-3.47) = 695 Cakes