Answer:
a) If the bakery sells 12,000 cupcakes annually;
i) The total cost will be $28,800.
ii) The total revenue will be $38,400.
iii)The total profit will be $9,600.
b) In order to break even, the bakery need to sell 7,826 cupcakes.
Explanation:
a)
<u>i)The total cost computation.</u>
The total cost refers to the total expenses incurred by a business/firm/company to produce a particular volume of its products. Alternatively, total cost refers to the total expenses incurred by a business/firm/company to provide a particular volume service.
Total costs comprises of two cost elements,the fixed costs and the variable costs.Thus total costs incurred by the bakery can be computed using the following formula:
Total costs = total fixed cost + ( Average variable cost per unit × Number of units produced).
Total costs = 18,000 + ( 0.9 × 12,000).
Total annual costs = 18,000 + 10,800 = $28,800.
ii) <u>Total revenue computation.</u>
Total revenue refers to amount attributed to the total sales of a business's products/services.
Total revenue realized by the bakery can be computed using the following formula:
Total revenue = Unit price × Number of units sold
Total revenue = 3.20 × 12,000
Total revenue = $38.400.
iii) <u>Profit computation.</u>
Total profit realized by the bakery can be computed using the following formula:
Profit = Total revenue - Total cost of production
Profit = 38,400 - 28,800 = $9,600
<u>b) Number of cupcake sales required to achieve to break even.</u>
Break-even point refers to the point at which all the revenue generated by a business covers/equals all its expenditure or costs.
The number of cupcakes sales required by the bakery to achieve break- even point can be computed using the following formula:
Break even point in units = fixed costs ÷ ( Unit price - Variable costs)
Break even point in units = 18,000 ÷ ( 3.20 - 0.90)
Break even point in units = 7,826 cupcakes.
