Question

Betty Buns is a student run hot fruit bun stand operating on a university campus, open ten months of the year. Fruit buns are bought partially pre-baked and then heated in the sales cart and sold. You are given the following figures pertaining to next year’s budget:

Expected annual sales – 73,000 buns at $0.70 each
Staff salaries - $21,700 p.a.
Monthly hire of cart $ 50. The cart is only hired in the months required.
Cost of buying part-baked buns is $0.23 each.
Monthly electricity costs $30. As the cart is heated all the time when in use this electricity cost is the same each day, regardless of sales. No electricity costs are incurred in the non- operational months.
Fruit buns are given to customers in paper bags – one per bag- and bags cost $0.02 each.

QUESTION:

Calculate the;

- variable costs per fruit bun (unit)

- contribution margin per fruit bun

- annual fixed costs

- annual number of fruit bun sales required to break even

Answer 1

Part 1: Calculation of variable cost per fruit bun (unit)

Particulars	$
Cost of buying part- baked buns	0.23
Paper bags	0.02
Variable cost per fruit bun (unit)	0.25

Part 2: Contribution Margin per fruit bun

Particulars	$
Selling price per fruit bun	0.70
Less: Variable cost per fruit bun	(0.25)
Contribution Margin per fruit bun	0.45

Part 3: Annual Fixed cost

Particulars	computation	$
Staff Salaries		21700
Cart hiring expenses	$50 * 10 months	500
Electricity cost	$30 * 10 months	300
Annual Fixed costs		22500

Part 4: Break even point

Break even point = Fixed cost / Contribution per unit

Break even point = $22500 / $0.45 per unit = 50000 fruit buns

Therefore, annual number of fruit bun sales required to break even = 50000 buns

All the best...