Cove’s Cakes is a local bakery. Price and cost information follows:     Price per cake$13.81 Variable cost per cake   Ingredients 2.34 Direct labor 1.09 Overhead (box, etc.) 0.21 Fixed cost per month$4,881.60   Required: 1. Determine Cove’s break-even point in units and sales dollars.2. Determine the bakery’s margin of safety if it currently sells 580 cakes per month.3. Determine the number of cakes that Cove must sell to generate $2,800 in profit.Complete this question by entering your answers in the tabs below. Required 1Required 2Required 3Determine the number of cakes that Cove must sell to generate $2,800 in profit. (Round your intermediate calculations to 2 decimal places and final answer to nearest whole number.)    Target Sales Units Cakes Required 2

Question
Asked Feb 29, 2020
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Cove’s Cakes is a local bakery. Price and cost information follows:
 

       
Price per cake $ 13.81  
Variable cost per cake      
Ingredients   2.34  
Direct labor   1.09  
Overhead (box, etc.)   0.21  
Fixed cost per month $ 4,881.60  
 

 

Required:

1. Determine Cove’s break-even point in units and sales dollars.

2. Determine the bakery’s margin of safety if it currently sells 580 cakes per month.

3. Determine the number of cakes that Cove must sell to generate $2,800 in profit.

Complete this question by entering your answers in the tabs below.

 
  • Required 1
  • Required 2
  • Required 3

Determine the number of cakes that Cove must sell to generate $2,800 in profit. (Round your intermediate calculations to 2 decimal places and final answer to nearest whole number.)

 
 
 
 
Target Sales Units   Cakes
 
  • Required 2
  •  
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Expert Answer

Step 1

Margin of safety:

 

It is a measure that shows the probability of decrease in the sales level before a company faces an operating loss or reaches its break-even point. It is expressed in terms of dollar of sales, unit of sales, and percent of current sales.

Step 2

1.

 

Compute the break-even point of Cove’s Cake.

 

Accounting homework question answer, step 2, image 1

 

Working Note (1):

 

Compute the variable cost of Cove’s Cake.

 

Accounting homework question answer, step 2, image 2

 

Working Note (2):

 

Compute the contribution margin of Cove’s Cake.

 

Accounting homework question answer, step 2, image 3

Step 3

2.

 

Compute the margin of safety of Cove’s Cake.

 

Accounting homework question answer, step 3, image 1

...

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