Question

you will open a stand and sell only toast, for 3 days. Everyday, you want to sell 200 toasts. With 1 kg Cheese you can make 50 toasts. 1 Kg Cheese is 25 TL, 1 toast bread is 0,5 TL. Toast machine is 200 TL, Stand, chair and other equipment and material costs 200 TL. You have to pay 100 TL to rent everyday. Also you have to pay a total of 200 TL to a friend who helped you at stand.

Find the total cost for this project. Find the cost per toast. Also find the breakeven point. You can add your profit and determine the sales price of 1 toast. Do you think it is a good opportunity/investment? Would you do this project? Is it a realistic and feasible project?

Answer 1

a) Total cost = 1500 TL

Total slices of toast needed = 200slices per day *3 days = 600 slices

Fixed cost:
toast machine = 200
equipment = 200
rent (100*3) = 300
Friend = 200
Total fixed cost = 900

Variable cost:
Toast (600*.05) = 300
Cheese (12 kg) = 300   
Total variable cost = 600

Total cost = fixed cost + variable cost = 900 + 600 = 1500

b) Cost per toast = 1 TL

cost of production is the variable cost. Cost per toast is the average variable cost
AVC = VC/ quantity = 600 / 600 = 1

c) Break even point = 2.50 TL per toast

Breakeven point is when price = ATC. ATC = TC/ quantity = 1500/ 600 = 2.50

d) Selling price (afte adding profit of 0.50TL) = 3.00 TL

e) This project is neither realsitic nor feasible. Fixed cost is too high to be successful. Quantity is too little to be productively efficient.