E6-4 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

$

14.31

Variable cost per cake

Ingredients

2.19

Direct labor

1.14

Overhead (box, etc.)

0.25

Fixed cost per month

$

4,828.50

Required: 1. Calculate Coves new break-even point under each of the following independent scenarios: (Round your answer to the nearest whole number.) a. Sales price increases by $1.50 per cake.

Break-Even Point

cakes

b. Fixed costs increase by $490 per month.

Break-Even Point

cakes

c. Variable costs decrease by $0.35 per cake.

Break-Even Point

cakes

d. Sales price decreases by $0.30 per cake.

Break-Even Point

cakes

2. Assume that Cove sold 460 cakes last month. Calculate the companys degree of operating leverage. (Do not round intermediate calculations. Round your answer to 4 decimal places.)

Degree of Operating Leverage

3. Using the degree of operating leverage calculated in Requirement 2 (Rounded to two decimal places) , calculate the change in profit caused by a 10 percent increase in sales revenue. (Round your final answer to 2 decimal places (i.e. .1234 should be entered as 12.34%.))

Effect on Profit

%