What is cottage bakerys current degree of operating leverage

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Reference no: EM131933172

Problem

The Cottage Bakery sells a variety of gourmet breads, cakes, pies, and pastries. Although its wares are considerably more expensive than those available at supermarkets and other bakeries, the Cottage Bakery has a loyal clientele willing to pay a premium price for premium quality. In a typical month, the Cottage Bakery generates revenue of $150,000 and earns a profit of $7,500. The Cottage Bakery's contribution margin ratio is 40%.

What is the Cottage Bakery's margin of safety at its current sales level?

What is the Cottage Bakery's current degree of operating leverage?

Now assume that Cottage Bakery expects a 15% increase in revenues. Using the information above, how much should Cottage Bakery expect their profits to increase?

Reference no: EM131933172

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