Question

Price per cake	14.51$
Variable cost per cake
ingredients	$2.31
direct labor	1.13$
overhead	0.15$
fixed cost per month	5,132.40$

1. Calculate Cove’s new break-even point under each of the following independent scenarios:

a. Sales price increases by $1.90 per cake.

b. Fixed costs increase by $530 per month.

c. Variable costs decrease by $0.33 per cake.

d. Sales price decreases by $0.60 per cake.

2. Assume that Cove sold 495 cakes last month. Calculate the company’s degree of operating leverage.

3. Using the degree of operating leverage, calculate the change in profit caused by a 14 percent increase in sales revenue.

QUESTION 3 IS KEY FOR ME!

Answer 1

Part-1
	a.SP increase by $1.90	Fixed Cost incread by $530	Varable Cost decrease by $0.33	a.SP decrease by $0.60
Sales Price	$16.41	$14.51	$14.51	$13.91
	(14.51+1.90)			(14.51-0.6)
Less: Variable cost (2.31+1.13+0.15)	$3.59	$3.59	$3.26	$3.59
			(3.59-0.33)
Contribution (a)	$12.82	$10.92	$11.25	$10.32
Fixed Cost (b)	$5,132.40	$5,662.40	$5,132.40	$5,132.40
		(5132.40+530)
BEP (b/a)	400	519	456	497

2. Computtion of Degre of Operating Leverage
Contribution margin/ Operating Income
=$6345.90/$1213.50=5.23 times
** Operating Income= Contribution Margin-Fixed Expense
=$6345.90--$5132.40=$1213.50
**Contribution Margin=(sales-VC) X Unit =(16.41-3.59)*495=$6345.90

3. Change in Profit= 5.23 Times X 14%=73.22%