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.

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

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Variable cost per cake
Ingredients
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Direct labor
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Overhead (box, etc.)
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Fixed cost per month
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Required:
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