The level of fixed costs (salaries, rent, and utilities) necessary to run my coffee shop on a monthly basis is $9,000. In addition, a cup of coffee sells for $1.25 costs $0.25 for the bulk coffee, filters, and water.
The contribution margin of a cup of coffee is, therefore, $1.00. I can now calculate how many cups of coffee I have to sell to cover my fixed costs:
Break-Even = (Fixed Costs) / (Contribution Margin)
= $9,000/$1.00 = 9,000 cups of coffee per month
I will also offer gourmet coffees, which cost $0.50 per cup to brew, at $2.00 per cup. I will also offer baked goods, which cost $0.30, each, at $1.30. The break-even calculation is now indeterminate, that is, there are an infinite number of solutions without making some additional assumptions.
I will assume that two-thirds of my coffee sales will be regular coffee (call the number of cups R, the remaining third, gourmet coffee, G). I will further assume that half of all coffee purchasers also buy a pastry (P):
Contribution Margin (CM) = CM for each product * Units sold
= $0.75*R + $1.50*G + $1.00*P
But G is half of R,
and P is half of R and G
combined: = $0.75*R + $1.50*(R/2) + $1.00*(R+G)/2
relating entirely to R: = $0.75*R + $0.75*R + $1.00* (R+(R/2))/2
combining and simplifying: = $1.50*R + $1.00*(3*R/4)
= $1.50*R + $0.75*R = $2.25*R
Since this must equal fixed costs at break-even: $2.25*R = $9000; R = 4000
Relating back to my assumptions, each month I must sell 4000 cups of regular coffee, 2000 cups of gourmet coffee, and 3000 pastries.
Create a break-even chart and do cost-plus pricing (price = unit cost/1 minus target rate of return) on regular coffee, gourmet coffee, and pastries combined.
Thank you for using BM.
Please check the attached file for the answers.
My interpretation of the instruction is that a BEP ...
A break-even chart is formulated.
Calculating Break-Even Volume and Creating Break-Even Chart
Peter, a president of a company produces power transformers for personal computer manufacturers. Peter's choice of the various methods by which a new model of transformer can be built has been narrowed to 3 choices. He estimates the product life of the transformer to be one year. Marketing has estimated that it can sell 5,000 of these new transformers within the time period. The 3 alternatives are:
1. Use existing equipment and fixtures, and hire high
-skilled machinists and technicians at $16.00 per hour (including benefits). With this method, each transformer will require 2 labor hours to assemble.
2. Use existing equipment, but invest $30,000 in new fixtures and instruction manuals to simplify some of the more complicated operations. Semiskilled workers can be employed at $12.00 per hour (including benefits), with each transformer requiring 1 labor hour to complete.
3. Invest $75,000 in new equipment, fixtures, and instruction manuals. This approach would eliminate all of the complicated procedures, thereby requiring only unskilled labor, which could be hired for $6.00 an hour (including benefits). With this method, each transformer would require 20 labor minutes to complete.
These are the questions that I am completely lost on. I have to do this in Excel.
A. Make a break-even chart using total cost versus volume for the above processes.
B. Calculate the 2 break-even volumes (i.e., those volumes at which you shift from one process to another).
C. Which alternatives would choose and why?View Full Posting Details