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Coves Cakes is a local bakery. Price and cost information follows:
| | | | |
| Price per cake | $ | 14.61 | |
| Variable cost per cake | | | |
| Ingredients | | 2.15 | |
| Direct labor | | 1.01 | |
| Overhead (box, etc.) | | 0.16 | |
| Fixed cost per month | $ | 3,274.10 | |
| |
Required:
1. Calculate Coves new break-even point under each of the following independent scenarios:
a. Sales price increases by $1.60 per cake.
b. Fixed costs increase by $465 per month.
c. Variable costs decrease by $0.30 per cake.
d. Sales price decreases by $0.70 per cake.
2. Assume that Cove sold 310 cakes last month. Calculate the companys degree of operating leverage.
3. Using the degree of operating leverage, calculate the change in profit caused by a 9 percent increase in sales revenue.
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