Question

Rio Coffee Shoppe sells two coffee drinks, a regular coffee and a latte. The two drinks have the following prices and cost characteristics:

	Regular Coffee			Latte
Sales price (per cup)	$	1.60		$	2.20
Variable costs (per cup)		0.80			1.60

The monthly fixed costs at Rio are $5,548. Based on experience, the manager at Rio knows that the store sells 80 percent regular coffee and 20 percent lattes.

Required:

How many cups of regular coffee and lattes must Rio sell every month to break even?

Answer 1

		Regular Coffee	Latte
	Sales price (per cup)	1.6	2.2
	Variable costs (per cup)	0.8	1.6
	Contribution margin	0.8	0.6
	sales Mix	80%	20%
	Weighted average contribution margin = 0.8 * 80% + 0.6 * 20%
	0.76
	Break Even Units = Fixed cost / Weighted average contribution margin
	=5548 / 0.76
	7300	Cups
Final Answer	Regular Cups Break Even	5840	Cups
	Latte Break Even	1460	Cups