Gloria is a successful home baker who specialises in cakes that are lower in sugar. She...

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Gloria is a successful home baker who specialises in cakes that are lower in sugar. She is trying to decide whether to take a lease on a shop and set up a permanent business. She has collected the following information relating to the previous two financial years: Required: (a) Number of cakes Average price per cake Total costs The cost of the lease is $36,000 per annum and other fixed costs are estimated to increase by $7,000. Variable costs are expected to remain the same. The average price per cake would be increased to $52. (b) Year 1 1,000 $45 $20,400 Year 2 1,200 $45 $23,400 Calculate the break even point in units and in sales dollar if the new lease is taken on. (7 marks) With the new lease taken on, Gloria budgeted that she could sell 1,500 cakes in a year. What is the margin of safety in sales dollar? What does this information tell you? Briefly explain the significance of the term 'margin of safety'. (4 marks) (c) If the new lease is taken on, calculate the number of cakes required to maintain the profit level achieved in year 2. (3 marks) Gloria is a successful home baker who specialises in cakes that are lower in sugar. She is trying to decide whether to take a lease on a shop and set up a permanent business. She has collected the following information relating to the previous two financial years: Required: (a) Number of cakes Average price per cake Total costs The cost of the lease is $36,000 per annum and other fixed costs are estimated to increase by $7,000. Variable costs are expected to remain the same. The average price per cake would be increased to $52. (b) Year 1 1,000 $45 $20,400 Year 2 1,200 $45 $23,400 Calculate the break even point in units and in sales dollar if the new lease is taken on. (7 marks) With the new lease taken on, Gloria budgeted that she could sell 1,500 cakes in a year. What is the margin of safety in sales dollar? What does this information tell you? Briefly explain the significance of the term 'margin of safety'. (4 marks) (c) If the new lease is taken on, calculate the number of cakes required to maintain the profit level achieved in year 2. (3 marks)

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