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

Price per cake $ 17.00

Variable cost per cake

Ingredients 2.50

Direct labor 1.40

Overhead (box, etc.) 0.20

Fixed cost per month $ 3,850.00

Required:

1.

Calculate Cove�s new break-even point under each of the following independent scenarios: (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)

Time remaining: 3:51:49

5.

value:
1.25 points

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

Price per cake

$

17.00

Variable cost per cake

Ingredients

2.50

Direct labor

1.40

Overhead (box, etc.)

0.20

Fixed cost per month

$

3,850.00

Required:

1.

Calculate Cove�s new break-even point under each of the following independent scenarios: (Round your intermediate calculations to 2 decimal places and final answers to the nearest whole number.)

a.

Sales price increases by $1.00 per cake.

b.

Fixed costs increase by $500 per month.

c.

Variable costs decrease by $0.35 per cake.

d.

Sales price decreases by $0.50 per cake.

2.

Assume that Cove sold 400 cakes last month. Calculate the company�s degree of operating leverage. (Round your answer to 4 decimal places.)

3.

Using the degree of operating leverage, calculate the change in profit caused by a 10 percent increase in sales revenue. (Do not round your intermediate calculations. Round your final answer to 2 decimal places.)

Part 1

a) Sales price increases by $1.00 per cake

Sales price = 17 + 1

                    = 18 per cake

Variable cost = 2.50 + 1.40 + 0.20

                       = 4.10 per cake

Contribution margin = Sales price - Variable cost

                                = 18 - 4.10

                                = 13.90 per cake

Break even point = Fixed cost/Contribution margin

                             = 3,850/13.90

                             = 277 cakes

b) Fixed costs increase by $500 per month.

Fixed cost = 3,850 + 500

                 = 4,350

Variable cost = 2.50 + 1.40 + 0.20

                      = 4.10 per cake

Contribution margin = Sales price - Variable cost

                                 = 17 - 4.10

                                 = 12.90 per cake

Break even point = Fixed cost/Contribution margin

                             = 4,350/12.90

                             = 337 cakes

c) Variable costs decrease by $0.35 per cake

Variable cost = 4.10 - 0.35

                      = 3.75 per cake

Contribution margin = Sales price - Variable cost

                                 = 17 - 3.75

                                 = 13.25 per cake

Break even point = Fixed cost/Contribution margin

                             = 3,850/13.25

                             = 291 cakes

d) Sales price decreases by $0.50 per cake

Sales price = 17 - 0.50

                   = 16.50 per cake

Variable cost = 2.50 + 1.40 + 0.20

                      = 4.10 per cake

Contribution margin = Sales price - Variable cost

                        = 16.50 - 4.10

                        = 12.40 per cake

Break even point = Fixed cost/Contribution margin

                             = 3,850/12.40

                             = 310 cakes

Part 2

Degree of operating leverage = Contribution ÷ EBIT

Contribution margin = sales - variable expenses

                                  = ( 400 × 17 ) - ( 400 × 4.10)

                                   = 5160

EBIT =  5160 - fixed expenses

        = 5160 - 3850

        = 1310

Degree of operating leverage =  5160 ÷ 1310

                                                    = 3.94

Part 3

operating leverage =  % change in EBIT ÷ % change in sales

                        3.94 = % increase in EBIT/10%

solve for % increase in EBIT, we get

% increase in EBIT = 39.4%

so they can see what that city is producing and to also see if they can some how get that product. like gold in africa.

a loan? that’s my guess, anywho.