Chapter 6, Problem 4E

Analyzing Changes in Price, Cost Structure, Degree of Operating Leverage
Refer to the information for Coves Cakes in E6-3.
1. Calculate Coves new break-even point under each of the following independent scenarios:
a. Sales price increases by $1.00 per cake.
b. Fixed costs increase by $500 per month.
c. Variable costs decrease by $0.35 per cake.
d. Saks price decreases by $0.50 per cake.
2. Refer to the original information presented in E63. Assume that Cove sold 400 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 10 percent increase in sales revenue.