Question

Bob’s Bakery sells three types of cupcakes, Chocolate with a berry on top, Vanilla with an icing face, Strawberry with sprinkles. The following table shows the sales price and variable costs for each type. The bakery incurs $300,000 a year in fixed expenses. Assume that it sells two Chocolate for every one Vanilla and every one Strawberry.
Cupcake type
Sales price
Variable cost
Chocolate with a berry on top
$0.35
$0.20
Vanilla with an icing face
$0.50
$0.45
Strawberry with sprinkles
$0.40
$0.27
Required
 How many cupcakes of each type will be sold at breakeven point?
 What amount of revenue would need to be generated by each type of cupcake for the company to earn $60,000 in operating income?

Answer 1

Particular	chocolate	vanilla	Strawberry
Sales	$0.35	$0.50	$0.40
Less variable cost	$0.20	$0.45	$0.27
Contribution per unit	$0.15	$0.05	$0.13
Sales mix	2	1	1
Total	$0.30	$0.05	$0.13

Total contribution = $0.30 + $0.05 + $0.13 = $0.48

1. To break even units required = fixed cost / contribution = $300000/$0.48 = 625000

Hence unite required

Chocolate = 625000*2 = 1250000

Vanilla = 625000*1 = 625000

Strawberry = 625000*1 = 625000

2. Required profit = $60000

Units required = ($60000+$300000) / $0.48 = 7500000

Units required of

Chocolate = 750000*2 = 1500000

Vanilla = 750000*1 = 750000

Strawberry = 750000*1 = 750000

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