Asher Hyatt owns and operates BabyCakes, a bakery that creates personalized birt

Question

Asher Hyatt owns and operates BabyCakes, a bakery that creates personalized birthday cakes for a child’s first birthday. The cakes, which sell for $60 and feature an edible picture of the child, are shipped throughout the country. A typical month’s results are as follows:

Sales revenue $863,400

Variable expenses 647,550

Contribution margin 215,850

Fixed expenses 115,200

Operating income $100,650

How many cakes will Asher Hyatt have to sell if she wants to earn $118,245 in operating income each month?

Explanation / Answer

From the given data:

                     Sales Revenue = 863,400 & Contribution margin = $215,850

                    This implies, Profit-Volume ratio = [Contribution/Sales]*100

                                                                   = [215850/863400]*100

                                                                   = 25%

                                         Given Fixed expenses = $115,200

Now, Calculation of Sales, when operating income = $118,245

                                Contribution Margin = Operating income + Fixed expenses

                                                             = 118,245 + 115,200

                                                            = $233,445

                            This implies Sales revenue = Contribution/25%

                                                                    = 2333,445/0.25

                                                                    = $933,780

                                         Now, Sales units = 933,780/60 [ since,1 cake= $60 ]

                                                                   = 15,563 cakes

    Conclusion: Asher Hyatt have to sell 15,563 cakes to earn $118,245 in operating income each month

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