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Part 2 : Contribution Margin and Break - even Analysis In trying to determine how many custom wedding cakes that he needs to sell to
Part : Contribution Margin and Breakeven Analysis
In trying to determine how many custom wedding cakes that he needs to sell to breakeven or make a profit,
Mr Suncat has requested that you answer several questions for him.
a Define and explain the purpose of a contribution margin.
b What is meant by contribution margin ratio and how might Mr Suncat find this ratio useful in making
business decisions?
c Using the above information, calculate the following items, being sure to show all calculations and
clearly labeling your answers:
Contribution margin per unit
Contribution margin ratio do not round your answer
Breakeven point in units
Breakeven point in dollars
d Explain what happens at the breakeven point and why companies do not want to remain at the
breakeven point.
e How many Custom wedding cakes does Suncat Cake Shop need to sell in order to realize a target
profit
of $ Show all calculations and clearly label your answer.
f What dollar sales will Suncat Cake Shop need to generate in order to realize a target profit of $
Show all calculations and clearly label your answer.
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