Question

Determine Cove’s break-even point in units and sales dollars. 2. Determine the bakery’s margin of safety if it currently sells 400 cakes per month. 3. Determine the number of cakes that Cove must sell to generate $2,200 in profit.

Answer 1

Answer:

a) At break even point, Q = 380 units, Sales dollar = $5247.8

b) Margin of safety at Q = 400 units is 0.05 × 100 = 5

c) Number of cakes that need to be sold before a profit of $2200 is made = 595 cakes

Step-by-step explanation:

Let the number of units be Q

Cost equation = (fixed cost) + (Variable cost)

Fixed Cost = $3898.8

Variable Cost = Variable cost per unit × number of units produced = (2.32 + 1.11 + 0.12) × Q = 3.55Q

Cost equation = 3898.8 + 3.55Q

Revenue = price per unit × number of units sold = 13.81 × Q = 13.81Q

At break even point,

Total cost = Revenue

3898.8 + 3.55Q = 13.81Q

10.26Q = 3898.8

Q = 380 units

In sales dollars, R = 13.81Q = 13.81 × 380 = $5247.8

b) Margin of safety = 100 × (Current sales - Breakeven point sales)/(current sales)

Breakeven point sales = $5247.8

At Q = 400 units, Current sales = 13.81 × 400 = $5524

Margin of safety = 100 × (5524 - 5247.8)/5524 = 5

c) number of cakes that Cove must sell to generate $2,200 in profit.

Profit = Revenue - Total Cost

2200 = 13.81Q - (3898.8 + 3.55Q)

2200 = 10.26Q - 3898.8

10.26Q = 2200 + 3898.8 = 6098.8

Q = 594.4 = 595 units