Breakeven Analysis/Target Sales (Assignment #5 to be completed in Excel) Although business was off to a great start in January, Rich realized that he would need to be profitable in order to continue as a viable business. He discussed the subject of profitability with Adrian who suggested that he needs o determine his breakeven point in both sales and dollars. He explained that break even is the point where all costs are covered by sales and so, profit is equal to zero. He also suggested that the company should establish monthly target profitability in order to determine the amount of cakes it would need to sell to achieve this level. Since Rich didn't know how to perform this calculation and in order to save money, he asked you to calculate the company's breakeven point and the target sales needed to achieve a monthly profit of $500. Required: Calculate S & S Bakery's breakeven point in both units and sales dollars. Also, calculate the sales needed in order to achieve a monthly profit of $500. (Note: Use four decimal places in converting from total to per unit cost). Assignment #5 Break Even Analysis/Target Sales January 2017 1 unit Sales Variable Expenses Contribution Margin Fixed Expenses Net Operating Income Contribution Margin/Sales Ratio: Break Even in Unit Sales: Fixed expenses/CM unit Actual: Cakes: Break even in dollars: Fixed expenses/CM ratio Sales Price x Break Even per unit Actual: Per Cake: Target Sales in Units: Fixed expenses+profit/CM per unit Target Sales in Dollars: Fixed expenses + Profit/CM ratio Sales price x Target sales per unit Actual Per cake Business Background Rich watched his mom making cakes for the Jewish holidays since he was a kid. He even faked being sick so he could stay home and smell the delicious aroma of cinnamon, brown sugar and the yeast dough as it came out of the oven. Lots of people in the neighborhood came over before the holidays to put in their orders. Mom had learned from her mom and had all the recipes written on 3 x 5 index cards in case Rich or his brother wanted them. Rich's dad encouraged him to become an accountant because a profession would provide a solid income and career opportunities. The problem is, he hated Accounting. Well, maybe hate is too strong a word, but it wasn't what he enjoyed doing. He was a cook. One day in Managerial Accounting class, Rich made a decision. He was going to quit school at the end of the semester and open up a bakery specializing in his mom's cakes. He anticipated that most of his business would be based on special order, customized cakes. He figured he could service family weekend gatherings, birthday and weddings celebrations, and, of course, the Jewish New Year celebrations. Although most of the baking would be to order, he would maintain a limited inventory for drop in customers. a In December of 2016, he left school, created a business plan, and incorporated S&S Bakery. The plan was to open for business on January 1, 2017. He would use the $50,000 his dad left him when he passed away two years earlier as start up capital and pay himself a minimum salary of $500 month for the first year. His friend Maria, a marketing executive with her own firm, agreed to provide marketing support for a cake a year. He found a location in Valencia close to a well known Hebrew school. The storefront was on Copperhill Drive, a busy street with a Starbucks and several restaurants. The landlord was impressed with his initiative and agreed to pay for all the leasehold improvements and charge $600 a month. Breakeven Analysis/Target Sales (Assignment #5 to be completed in Excel) Although business was off to a great start in January, Rich realized that he would need to be profitable in order to continue as a viable business. He discussed the subject of profitability with Adrian who suggested that he needs o determine his breakeven point in both sales and dollars. He explained that break even is the point where all costs are covered by sales and so, profit is equal to zero. He also suggested that the company should establish monthly target profitability in order to determine the amount of cakes it would need to sell to achieve this level. Since Rich didn't know how to perform this calculation and in order to save money, he asked you to calculate the company's breakeven point and the target sales needed to achieve a monthly profit of $500. Required: Calculate S & S Bakery's breakeven point in both units and sales dollars. Also, calculate the sales needed in order to achieve a monthly profit of $500. (Note: Use four decimal places in converting from total to per unit cost). Assignment #5 Break Even Analysis/Target Sales January 2017 1 unit Sales Variable Expenses Contribution Margin Fixed Expenses Net Operating Income Contribution Margin/Sales Ratio: Break Even in Unit Sales: Fixed expenses/CM unit Actual: Cakes: Break even in dollars: Fixed expenses/CM ratio Sales Price x Break Even per unit Actual: Per Cake: Target Sales in Units: Fixed expenses+profit/CM per unit Target Sales in Dollars: Fixed expenses + Profit/CM ratio Sales price x Target sales per unit Actual Per cake Business Background Rich watched his mom making cakes for the Jewish holidays since he was a kid. He even faked being sick so he could stay home and smell the delicious aroma of cinnamon, brown sugar and the yeast dough as it came out of the oven. Lots of people in the neighborhood came over before the holidays to put in their orders. Mom had learned from her mom and had all the recipes written on 3 x 5 index cards in case Rich or his brother wanted them. Rich's dad encouraged him to become an accountant because a profession would provide a solid income and career opportunities. The problem is, he hated Accounting. Well, maybe hate is too strong a word, but it wasn't what he enjoyed doing. He was a cook. One day in Managerial Accounting class, Rich made a decision. He was going to quit school at the end of the semester and open up a bakery specializing in his mom's cakes. He anticipated that most of his business would be based on special order, customized cakes. He figured he could service family weekend gatherings, birthday and weddings celebrations, and, of course, the Jewish New Year celebrations. Although most of the baking would be to order, he would maintain a limited inventory for drop in customers. a In December of 2016, he left school, created a business plan, and incorporated S&S Bakery. The plan was to open for business on January 1, 2017. He would use the $50,000 his dad left him when he passed away two years earlier as start up capital and pay himself a minimum salary of $500 month for the first year. His friend Maria, a marketing executive with her own firm, agreed to provide marketing support for a cake a year. He found a location in Valencia close to a well known Hebrew school. The storefront was on Copperhill Drive, a busy street with a Starbucks and several restaurants. The landlord was impressed with his initiative and agreed to pay for all the leasehold improvements and charge $600 a month