E6-4 Analyzing Changes in Price, Cost Structure, Degree ofOperating Leverage [LO 6-4, 6-5]
Cove’s Cakes is a local bakery. Price and cost informationfollows:
| | | |
| Price per cake | $ | 14.31 | |
| Variable cost per cake | | | |
| Ingredients | | 2.33 | |
| Direct labor | | 1.11 | |
| Overhead (box, etc.) | | 0.19 | |
| Fixed cost per month | $ | 3,524.40 | |
| | | |
|
Required:
1. Calculate Cove’s new break-even point under each of thefollowing independent scenarios: (Round your answer to thenearest whole number.)
a. Sales price increases by $1.50 per cake.
b. Fixed costs increase by $475 per month.
c. Variable costs decrease by $0.25 percake.
d. Sales price decreases by $0.40 per cake.
2. Assume that Cove sold 355 cakes last month.Calculate the company’s degree of operating leverage. (Donot round intermediate calculations. Round your answer to 2 decimalplaces.)
3. Using the degree of operating leveragecalculated in Requirement 2, calculate the change in profit causedby a 6 percent increase in sales revenue. (Round your finalanswer to 2 decimal places (i.e. .1234 should be entered as12.34%.))
