Question

COFFEE EXPRESS has computed its fixed costs to be $.42 for every cup of coffee it sells, given annual sales of 154,000 cups. The sales price is $1.49 per cup while the variable cost per cup is $.07 How many cups of coffee must COFFEE EXPRESS sell to breakeven on a cash basis?

Answer 1

Break-even point

Break-Even Point determines the volume of sales required to cover all operating expenses, in other words, it is a situation of no profit or no loss to the company.

In the given question there are no non-cash expenses like depreciation and amortization of expenses.

Let us calculate Break-even point,

Break-even Point = Fixed Costs / Contribution Margin

• Fixed cost = Sales X Fixed costs per unit

= 154000 X $0.42 = $64,680

• Contribution Margin = Sales Price Per Unit – Variable Costs Per Unit

= $1.49 - $0.07
= $1.42

Therefore,
Break-even point = Fixed Costs / Contribution Margin

= $64,680 / $1.42

= 45,549 units.

To reach break-even level COFFEE EXPRESS require to sell 45,549 cups of coffee.

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