Question

If the maximum operating capacity of the Gobblecakes bakery is 12,000 cupcakes annu- ally, determine the break-even volume as a percentage of that capacity. Gobblecakes is a bakery that specializes in cupcakes. The annual fixed cost to make cupcakes is $18,000. The variable cost including ingredients and labor to make a cupcake is $0.90. The bakery sells cupcakes for $3.20 apiece. If the bakery sells 12,000 cupcakes annually, determine the total cost, total revenue, and profit.

Answer 1

(a) 65.22%

(b) $28,800; $38,400; $9,600

Step-by-step explanation:

Total cost:

= variable cost + fixed cost

= (12,000 × 0.90) + 18,000

= 28,800

Total Revenue:

= quantity of cupcakes sold × selling price of each cupcake

= 12,000 × 3.2

= 38,400

Profit:

= Total revenue - Total cost

= 38,400 - 28,800

= 9,600

Break even sales:

= Fixed cost ÷ contribution margin

= 18,000 ÷ (3.2 - 0.90)

= 7,826.087

Break even volume in capacity:

= Break even sales ÷ Cupcakes produced

= 7,826.087 ÷ 12,000

= 65.22%