Question

S7.26 As a prospective owner of a club known as the Red Rose, you are interested in determining the volume of sales dollars necessary for the coming year to reach the break-even point. You have decided to break down the sales for the club into four categories, the first category being beer. Your estimate of the beer sales is that 30,000 drinks will be served. The selling price for each unit will average $1.50; the cost is $.75. The second major category is meals, which you expect to be 10,000 units with an average price of $10.00 and a cost of $5.00. The third major category is desserts and wine, of which you also expect to sell 10,000 units, but with an average price of $2.50 per unit sold and a cost of $1.00 per unit. The final category is lunches and inexpensive sandwiches, which you expect to total 20,000 units at an average price of $6.25 with a food cost of $3.25. Your fixed cost (i.e., rent, utilities, and so on) is $1,800 per month plus $2,000 per month for entertainment. a) What is your break-even point in dollars per month? b) What is the expected number of meals each day if you are open 30 days a month

Answer 1

To calculate the break even point in dollars we have to add all the costs for different categories as per the quantity sold and also include the fixed cost

Cost of selling 30000 beer = 30000 * 0.75 = $ 22,500

Cost of selling 10000 meals = 10000 * 5 = $ 50,000

Cost of selling 10000 units of desserts and wine = 10000 * 1 = $ 10,000

Cost of selling 20000 units of lunches and inexpensive sandwiches = 20000 * 3.25 = $ 65,000

Total Fixed cost = 1800 + 2000 = $ 3,800

Break even point in dollars per month = 22,500 + 50,000 + 10,000 + 65,000 + 3,800 = $ 1,51,300

b) Expected number of meals each day