Cove’s Cakes is a local bakery. Price and cost information
follows:
Price per cake | $ | 13.81 | |
Variable cost per cake | |||
Ingredients | 2.33 | ||
Direct labor | 1.19 | ||
Overhead (box, etc.) | 0.17 | ||
Fixed cost per month | $ | 3,137.20 | |
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.)
2. Determine the bakery’s margin of safety if it
currently sells 370 cakes per month. (Round your
intermediate calculations to 2 decimals. Round the break-even units
and final answer to nearest whole dollar.)
3. Determine the number of cakes that Cove must
sell to generate $1,300 in profit. (Round your intermediate
calculations to 2 decimal places and final answer to nearest whole
number.)
Contribution Margin per unit = Sales price - Variable costs
= 13.81 - (2.33+1.19+0.17) = 10.12
Contribution margin ratio = Contribution margin/Sales price = 10.12/13.81 = 73.28%
Breakeven point in units = Fixed cost/Contribution margin per unit = 3137.20/10.12 = 310 units Breakeven point in sales dollars = Fixed cost/Contribution margin ratio = 3137.20/73.28% = 4281.11 (Or try 4281.10) |
Margin of Safety = Sales - Breakeven sales units = 370 - 310 = 60 units |
Units to be sold = (Fixed costs + Target profit)/Contribution margin per unit = (3137.20+1300)/10.12 = 438 units (or try 439 units) |
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