E6-4 (Algo) Analyzing Changes in Price, Cost Structure, Degree of Operating Leverage [LO 6-4, 6-5]

Coves Cakes is a local bakery. Price and cost information follows:

Price per cake	$	14.01
Variable cost per cake
Ingredients		2.29
Direct labor		1.17
Overhead (box, etc.)		0.23
Fixed cost per month	$	3,818.40

Required:

1. Calculate Coves new break-even point under each of the following independent scenarios:

a. Sales price increases by $1.90 per cake.

b. Fixed costs increase by $495 per month.

c. Variable costs decrease by $0.38 per cake.

d. Sales price decreases by $0.20 per cake.

2. Assume that Cove sold 400 cakes last month. Calculate the companys degree of operating leverage.

3. Using the degree of operating leverage, calculate the change in profit caused by a 10 percent increase in sales revenue.

Break-Even Point 1a. 312 cakes 1b. 418 cakes Sales price increases by $1.90 per cake Fixed costs increase by $495 per month Variable costs decrease by $0.38 per cake. Sales price decreases by $0.20 per cake 1c. 384 X cakes 1d. 393 x cakes