Question

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

Price per cake	$	14.91
Variable cost per cake
Ingredients		2.33
Direct labor		1.18
Overhead (box, etc.)		0.25
Fixed cost per month	$	3,233.50

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 380 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.)

Answer 1

Part 1

Contribution margin= selling price per unit - variable cost per unit = 14.91-(2.33+1.18+0.25) = 14.91-3.76 = 11.15

Break even in units = fixed cost / contribution margin per unit = 3233.50 / 11.15 = 290 units

Break even in dollars= 290 units * 14.91= 4323.90 = $4324

Part 2

Margin safety in units = actual sales- break even sales = 380-290 = 90 units

Margin of safety in dollars= 90 units*14.91 = 1341.90 = $1342

Part 3

Desired sales= (fixed cost+ desired profit) / contribution margin per unit = (3233.50+1300) / 11.15 = 406.59 = 407 units