Brandi's Bakery sells strawberry cakes for $15 each.Last month Brandi sold 1,200 cakes.Variable costs were $5 per cake and fixed costs totaled $3,000.This month, Brandi has decided to spend $1,000 to sponsor a team for a Relay for Life golf tournament.She believes that the additional advertising from the sponsorship will generate 10% more sales than last month.What will be this month's operating income?

Question

Quizplus · Accepted Answer

This month, Brandi will sell 1,200 * 1.10 = 1,320 cakes. Variable costs will be 1,320 * $5 = $6,600. Fixed costs will remain at $3,000. Total costs will be $6,600 + $3,000 + $1,000 = $10,600. Revenue will be 1,320 * $15 = $19,800. Operating income will be $19,800 - $10,600 = $9,200.

Brandi's Bakery Sells Strawberry Cakes for $15 Each