Julianna Abdallah owns and operates FirstCakes a bakery that

Julianna Abdallah owns and operates FirstCakes, a bakery that creates personalized birthday cakes for a child’s first birthday. The cakes, which sell for $50 and feature an edible picture of the child, are shipped throughout the country. A typical month’s results are as follows:

$ 137,250

b) Breakeven point _____ Cakes

Sales revenue		$839,000
Variable expenses		587,300
Contribution margin		251,700
Fixed expenses		114,450
Operating income		$ 137,250

Solution

a) Contribution margin per unit: $15 per cake Number of units sold = Sales/Selling price per unit = $839000/$50 = 16780 cakes Contribution margin per unit = Contribution margin/Number of units sold = $251700/16780 = $15 b) Breakeven point: 7630 cakes Breakeven point = Fixed expenses/Contribution per unit = $114450/$15 = 7630 c) Contribution margin ratio: 30% Contribution margin ratio = Contribution margin/Sales = $15/$50 = 30% d) Breakeven sales: $381500 Breakeven sales = Fixed expenses/Contribution margin ratio = $114450/30% = $381500