Question
In: Accounting
Cove’s Cakes is a local bakery. Price and cost information follows: Price per cake $ 14.61...
Cove’s Cakes is a local bakery. Price and cost information
follows:
| Price per cake | $ | 14.61 | |
| Variable cost per cake | |||
| Ingredients | 2.22 | ||
| Direct labor | 1.15 | ||
| Overhead (box, etc.) | 0.27 | ||
| Fixed cost per month | $ | 3,291.00 | |
Required:
1. Determine Cove’s break-even point in units and sales dollars.
2. Determine the bakery’s margin of safety if it currently sells 370 cakes per month.
3. Determine the number of cakes that Cove must sell to generate $1,900 in profit.
Solutions
Expert Solution
Requirement 1
Break even point in units = 300 units
Break even point in sales dollars = $ 4,383
Requirement 2:
Margin of safety = $ 1022.70
Requirement 3:
Number of cakes sold to get desired profit = 473 cakes (rounded off)
Working:
| Amount | ||
| Selling Price per unit | $ 14.61 | |
| Less :Variable Cost | $ (3.64) | (2.22+1.15+0.27) |
| Contribution Margin | $ 10.97 | |
| Fixed Cost | $ 3,291.00 | |
| Break Even Sales in $ [Fixed Costs/ Contribution Margin]*Selling price per unit | $ 4,383.00 | 3291/10.97*14.61 |
| Break Even Sales units [Fixed Costs/ Contribution Margin] | 300 | 3291/10.97 |
| Margin In Safety [in dollars] [Actual sales - break even sales] | $ 1,022.70 | (370*14.61)-4383 |
| Sales for Desired Profit[ In Units] [fixed cost+desired income] / contribution margin] | 473.20 | (3291+1900)/10.97 |
ekkarill92 answered 10 months agoRelated Solutions
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