Luke's Wedding Cakes creates elaborate wedding cakes. Each cake sells for $500. The variable cost of...

 

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Luke's Wedding Cakes creates elaborate wedding cakes. Each cake sells for $500. The variable cost of baking the cakes is $200 and the fixed cost per month is $6,000. Break- even point, as calculated in the previous slide, is 20 cakes. Required: 1. Assume that Luke currently sells 45 cakes. Everything else equal, if per-unit sales price increases by 4%, what will be the percentage increase in pre-tax profit? 2. Every else equal, if fixed cost increases by 10%, by what percentage will per-unit sales price need to increase to maintain the original break- even point? 3. Every else equal, if fixed cost decreases by 5%, what's maximum percentage increase in per-unit variable cost can Luke afford without increasing the original break-even point? Luke's Wedding Cakes creates elaborate wedding cakes. Each cake sells for $500. The variable cost of baking the cakes is $200 and the fixed cost per month is $6,000. Break- even point, as calculated in the previous slide, is 20 cakes. Required: 1. Assume that Luke currently sells 45 cakes. Everything else equal, if per-unit sales price increases by 4%, what will be the percentage increase in pre-tax profit? 2. Every else equal, if fixed cost increases by 10%, by what percentage will per-unit sales price need to increase to maintain the original break- even point? 3. Every else equal, if fixed cost decreases by 5%, what's maximum percentage increase in per-unit variable cost can Luke afford without increasing the original break-even point?

Answer rating: 100% (QA)

1 To calculate the percentage increase in pretax profit when the perunit sales price increases by 4 we need to compare the original profit and the new profit Original profit per cake Sales price per c... View the full answer