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.