Answer:
Cove’s break-even point is approximately 360 cakes per month.
the bakery’s margin of safety is $807.60 in sales dollars.
Cove must sell approximately 575 cakes to generate $2,700 in profit.
Step-by-step explanation:
To determine Cove’s break-even point in units, we need to calculate the contribution margin per cake:
Contribution margin per cake = Price per cake – Variable cost per cake
Contribution margin per cake = $13.51 – ($2.26 + $1.09 + $0.27)
Contribution margin per cake = $9.89
To determine the break-even point in units, we divide the total fixed costs by the contribution margin per cake:
Break-even point in units = Fixed costs ÷ Contribution margin per cake
Break-even point in units = $3,560.40 ÷ $9.89
Break-even point in units = 359.3
So Cove’s break-even point is approximately 360 cakes per month.
To determine Cove’s break-even point in sales dollars, we can multiply the break-even point in units by the price per cake:
Break-even point in sales dollars = Break-even point in units × Price per cake
Break-even point in sales dollars = 360 × $13.51
Break-even point in sales dollars = $4,863.60
Therefore, Cove’s break-even point is 360 cakes per month or $4,863.60 in sales dollars.
To determine the bakery’s margin of safety in sales dollars, we need to subtract the break-even point in sales dollars from the actual sales:
Margin of safety = Actual sales – Break-even point in sales
Margin of safety = (420 cakes × $13.51 per cake) – $4,863.60
Margin of safety = $5,671.20 – $4,863.60
Margin of safety = $807.60
Therefore, the bakery’s margin of safety is $807.60 in sales dollars.
To determine the number of cakes that Cove must sell to generate $2,700 in profit, we can use the following formula:
Profit = (Price per cake × Quantity sold) – (Variable cost per cake × Quantity sold) – Fixed costs
We can rearrange the formula to solve for the quantity sold:
Quantity sold = (Profit + Fixed costs) ÷ (Price per cake – Variable cost per cake)
Quantity sold = ($2,700 + $3,560.40) ÷ ($13.51 – $2.62)
Quantity sold = $6,260.40 ÷ $10.89
Quantity sold = 575.2
Therefore, Cove must sell approximately 575 cakes to generate $2,700 in profit.