A commercial bakery produces artisan cakes at a base cost of \40 per cake. The bakery mark… — GMAT

A commercial bakery produces artisan cakes at a base cost of $\$40$ per cake. The bakery marks up the base cost by $75\%$ to set the catalog price. To encourage bulk corporate orders, the bakery offers a $20\%$ discount off the catalog price. If the bakery incurs an additional packaging and delivery expense of $\$6$ per cake, what is the bakery's net profit, in dollars, on each corporate cake sold?

Answer: 10 dollars

Answer

The bakery earns a net profit of $10 on each corporate cake sold.

The catalog price is

40 \times 1.75 =

70. Applying a 20% discount gives a discounted selling price of

70 \times 0.80 =

56. The total cost to produce and package each cake is

40 +

6 =

46. Subtracting total cost from selling price yields a net profit of

56 -

46 =

10.

Step-by-Step Solution

Calculate the catalog price using the base cost and markup percentage.

Catalog price =

40 \times (1 + 0.75) =

The catalog price is established by marking up the base production cost by 75%.

Calculate the selling price after applying the discount.

Selling price =

70 \times (1 - 0.20) =

The 20% promotional discount applies to the marked-up catalog price.

Calculate the total cost incurred by the bakery for each cake.

Total cost = Base cost + Overhead expense =

40 +

6 = $46

Net profit calculations must account for both production base cost and direct selling/packaging expenses.

Subtract total cost from selling price to determine net profit.

Net profit =

56 -

46 = $10

Net profit equals total revenue per unit minus total costs per unit.

Key Concept

Profit, Loss, and Markup with Successive Adjustments and Overhead Expenses

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