Bob is considering opening a bakery that will sell a single type of bread. He is working on a business model and wants to discover whether this venture is financially viable – and when it would become profitable. Here is a breakdown of his financials:
Fixed costs (monthly) 
Variable costs (per loaf) 
Selling price (per loaf) 

Rent 
$2,500 
Flour 
$0.50 

Insurance 
$250 
Water 
$0.25 

Utilities 
$250 
Salt 
$0.10 

Advertising 
$500 
Yeast 
$0.15 

Total 
$3,500 
Total 
$1 
Total $5 
$5 
Using the breakeven point formula, he wants to calculate the number of loaves the bakery will need to sell each month in order to cover all expenses.
1. Calculate the breakeven point.
Breakeven point
= Fixed cost / (Selling price  Variable cost)
= 3,500 / (5 1)
= 875 loaves
2. Assume Bob’s bakery sold 700, 750, and 900 loaves during the first three months respectively. What is the total profit or loss did the bakery make in each of the three months?
700 loaves 
750 loaves 
900 loaves 

Sales  3,500  3,750  4,500 
Less: Variable expenses  700  750  900 
Contribution Margin  2,800  3,000  3,600 
Less: Fixed costs  3,500  3,500  3,500 
Operating Income (Loss)  (700)  (500)  100 
3. Assume Bob has an objective of making an annual
profit of $6000 during the first year, how many loaves does he need
to sell to reach that objective?
= [Fixed cost + Target profit] / (Selling price  Variable
cost)
= [(3,500*12) + 6,000] / (5 1)
= 12,000 loaves
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