Cove’s Cakes is a local bakery. Price and cost informationfollows:
| | | |
| 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 Cove’s new break-even point undereach 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 percake.
d. Sales price decreases by $0.70 per cake.
2. Assume that Cove sold 310 cakes last month.Calculate the company’s degree of operating leverage.
3. Using the degree of operating leverage,calculate the change in profit caused by a 9 percent increase insales revenue.
