# the contribution margin of the product.

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The Sarah Cupcake Co. has fixed costs of \$50,000 per year. It sells cupcakes in boxes of 6 for \$7.50 each. Variable costs per unit are \$3. This includes raw materials, packaging and costs of labor and electricity for the ovens.

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Question 1The Sarah Cupcake Co. has fixed costs of \$50,000 per year. It sellscupcakes in boxes of 6 for \$7.50 each. Variable costs per unit are \$3.This includes raw materials, packaging and costs of labor and electricityfor the ovens.Answer: 1-A What is the contribution margin of the product?fixed costselling price of every 6 boxesvariable cost per unitcontribution margincontribution margincontribution marginAnswer: 1-B Calculate breakeven point and unit sales in dollarsa) Break-even pointat breakeven point the profit is equal to zeroSelling price of every 6 boxesxvariable cost per unitfixed cost0=(\$7.5-\$3)x - \$50,000\$50,000= \$4.5x THEN x=xb) p*xc)The answer isnot 11,111,111 units because it is not possible to make0.111 of a unit considering that the product is a cup cake and has tobe soldas a whole cup cake.The next full unit has to be considered in calculationof the break even.Answer: 1-C What is the operating profit (loss) at 5,000 unit per year?operating profitsunits=xprofitsprofit=(\$7.5-\$3)5000 - \$50,000Answer: 1-D What is the operating profit(loss) at 15,000 unit per year?operating profitsunitsprofitsprofit=(\$7.5-\$3)15000 - \$50,000Answer:1-E Plot a breakeven chart, use the foregoing figures andother data as necessary.You should get a straight lines.Breakeven analysis\$20,000\$15,000operating profits\$10,000\$5,000\$0(\$5,000)0200040006000(\$10,000)(\$15,000)(\$20,000)(\$25,000)(\$30,000)unitsQuestion 2Mrs. Moor

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