Refer to the information for Cove’s Cakes in E6-3.
Price per cake ....... $17.00
Variable cost per cake
Ingredients ........ 2.50
Direct labor ....... 1.40
Overhead (box, etc.) ..... 0.20
Fixed cost per month .... $3,850.00

1. Calculate Cove’s new break-even point under each of the following independent scenarios:
a. Sales price increases by $1.00 per cake.
b. Fixed costs increase by $500 per month.
c. Variable costs decrease by $0.35 per cake.
d. Sales price decreases by $0.50 per cake.
2. Refer to the original information presented in E6-3. Assume that Cove sold 400 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 10 percent increase in sales revenue.

  • CreatedFebruary 27, 2015
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