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Managerial Accounting

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Calculating Break-Even Point: PDH

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Paddy Hope Industries is starting a business baking and decorating wedding cakes. Paddy estimates monthly fixed costs of \$10,000 due to depreciation on the kitchen equipment, insurance, rent on the commercial kitchen facilities, and various other costs that do not change, regardless of production volume.

As there has been considerable interest in Paddy's cakes, he believes he can sell all that he produces. Cakes are sold for an average of $650 each, with variable costs averaging about 60% of sale price.

How many cakes should Paddy sell annually to break even?