Gobblecakes is a bakery that specializes in cupcakes. the annual fixed cost to make cupcakes is $18,000. the variable cost including ingredients and labor to make a cupcake is $0.90. the bakery sells cupcakes for $3.20 apiece.

a. if the bakery sells 12,000 cupcakes annually, determine the total cost, total revenue, and profit.
b. how many cupcakes will the bakery need to sell in order to break even?

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)

i)The total cost computation.

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) Total revenue computation.

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) Profit computation.

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

b)  Number of cupcake sales required to achieve to break even.

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.

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