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)	$	1.90		$	2.60
Variable costs (per cup)		0.60			1.00

The monthly fixed costs at Rio are $10,147. Based on experience, the manager at Rio knows that the store sells 70 percent regular coffee and 30 percent lattes

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

	Break-even Sales in Units
Regular coffee
Lattes

Answer 1

		Regular Coffee	Latte
	Sales price (per cup)	1.9	2.6
	Variable costs (per cup)	0.6	1
	Contribution margin	1.3	1.6
	sales Mix	70%	30%
	Weighted average contribution margin = 1.3 * 70% + 1.6 * 30%
	1.39
	Break Even Units = Fixed cost / Weighted average contribution margin
	=10147 / 1.39
	7300	Cups
Final Answer	Regular Cups Break Even	5110	Cups
	Latte Break Even	2190	Cups