determining profit equation

Question

Maureens bakery currently has a fixed cost of $40,000 per month. Suppose it has been estimated that variable costs are $2.80 per birthday cake. Birthday cakes are currently selling for $15.75 per cake. 

Answer 1

The question seems to be, how many cakes does Maureen need to sell until she starts earning a profit? Since variable costs are $2.80 per cake, and cakes sell for $15.75, the contribution to margin for each cake is 15.75-2.80=$12.95. In order to cover the fixed cost, she would have to sell 40,000/12.95=3089 cakes per month. When she sells her 3090th cake, she will make a profit of $12.95, and $12.95 for each cake after that.