For each of the following, perform a break-even analysis showing computation of the — Rosemary planning make fancy multi-tiered wedding cakes next wed- ding season she

Rosemary is planning to make fancy multi-tiered wedding cakes for the next wed- ding season. To make the cakes, she must invest $834 in some special baking pans and tools. To get started, she needs to spend $1800 to advertise in the newspaper. She estimates that supplies and materials for each cake will cost $60. She is planning to set the price for each cake at $499.

For each of the following, perform a break-even analysis showing computation of the

(a) Contribution margin;

(b) Contribution rate;

(c) Break-even point in units;

(d) Break-even point in sales dollars.

SOLUTION

(a) Contribution margin is,

$499 − $60 = $439

The contribution margin is $439.

(b) Contribution rate is,