After three years in the cake shop business,Gloria has decided she can now afford toadvertise. An advertising package would costher $30,416 for one year. Assumingadvertising is a fixed cost and her unitcontribution is now $8.75, how manyadditional cakes would she need to sell tomake the advertising package worthwhile?That is, how many additional cakes does sheneed to sell to pay for the advertising andbreakeven. Round to the nearest wholenumber.

Breakeven is the point at which an entity is in a situation of no profit and no loss. At this point,…

Answered: After three years in the cake shop…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Gloria is planning on opening a cake shop. She has found a location that rents for $15,550 per year and it will cost her another $13,716 to furnish the shop and purchase all the necessary equipment. She plans on charging $20 for a cake and it will cost her $3 per cake for ingredients and $1.92 per cake for decorations and $1.59 per cake for the beautiful, colorful to-go boxes. What is the dollar breakeven point she will need to earn to cover her costs in the first year? Round to the nearest whole number.
Ingrid is planning to expand her business by taking on a new product that costs $7.56. In order to market this new product, $1307.00 must be spent on advertising. The suggested retail price for the product is $11.31. (a) If a price of $14.49 is chosen, how many units does she need to sell to break even? (b) If advertising is increased to $1674.00, and the price is kept at $11.31, how many units does she need to sell to break even?
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