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) $ 1.50 $ 2.50 Variable costs (per cup) 0.70 1.30 The monthly fixed costs at Rio are $6,720. Based on experience, the manager at Rio knows that the store sells 60 percent regular coffee and 40 percent lattes. Required: How many cups of regular coffee and lattes must Rio sell every month to break even?

Answer 1

Answer:

3,919 regular

2,613 latte

Explanation:

To know the break even first we will need to know the contribution mix:

First, we calculate the contribution margin per product

$Sales \: Revenue - Variable \: Cost = Contribution \: Margin$

Regular:

1.50 - 0.70 = 0.8

Coffe Latte:

2.50 - 1.30 = 1.20

Second, we will multiply contrbution with the sales weight, for each product and add them together:

0.8* 60% = 0.48

1.20 * 40% = 0.48

Contribution Mix 0.96

Now we proceed with the BEP:

$\frac{Fixed\:Cost}{Contribution \:Margin \:mix} = Break\: Even\: Point_{units}$

6270/0.96 = 6531.25 = BEP

now we convert this value in types of coffe multiplying by the sale weight

6,531.25 x 60% = 3,918.75 regular

6,531.25 x 40% = 2,612.5 latte

We can do half a coffe so we round up in both cases.