3. Using the degree of operating leverage, calculate the change in profit caused by a 13 percent increase in sales revenue. Using the degree of operating leverage, calculate the change in profit caused by a 13 percent increase in sales revenue. (Round your intermediate values to 2 decimal places. (i.e. 0.1234 should be entered as 12.34%.))
Cove’s Cakes is a local bakery. Price and cost information follows:
| Price per cake | $ | 13.21 | |
| Variable cost per cake | |||
| Ingredients | 2.31 | ||
| Direct labor | 1.07 | ||
| 0.23 | |||
| Fixed cost per month | $ | 3,456.00 | |
Required:
1. Calculate Cove’s new break-even point under each of the following independent scenarios:
a. Sales price increases by $1.70 per cake.
b. Fixed costs increase by $470 per month.
c. Variable costs decrease by $0.39 per cake.
d. Sales price decreases by $0.80 per cake.
2. Assume that Cove sold 380 cakes last month. Calculate the company’s degree of operating leverage.
3. Using the degree of operating leverage, calculate the change in profit caused by a 13 percent increase in sales revenue. Using the degree of operating leverage, calculate the change in profit caused by a 13 percent increase in sales revenue. (Round your intermediate values to 2 decimal places. (i.e. 0.1234 should be entered as 12.34%.))
I am having trouble with #3, thought it degree of operating leverage 19 so 13% profit would 19*.13, but that's not the answer. Please help?
Thank you!
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