Question

The owner of a small restaurant that sells take-out fried chicken and biscuits pays each month $2,500 in rent, $500 in utilities, $750 interest on his loan, insurance premium of $200, and $250 on advertising on local buses. A bucket of take-out chicken is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50. How many small buckets of chicken does the restaurant need to sell to break-even each month? a. 442 buckets b. 764 buckets c. 1,050 buckets d. 3,150 buckets e. 4,200 buckets

Answer 1

Answer:

option (c) 1,050 buckets

Explanation:

Data provided in the question:

Rent paid = $2,500

Utilities = $500

Interest on loan = $750

Insurance premium = $200

Advertising on local buses = $250

Price of bucket of take-out chicken = $9.50

Variable cost of bucket of take-out chicken = $5.50

Now,

at break-even

Total cost = Total revenue

Thus,

Total fixed cost + Total variable cost = Total revenue

let the break-even units be 'x'

therefore,

$2,500 + $500 + $750 + $200 + $250 + $5.50x = $9.50x

or

$4,200 = ( $9.50 - $5.50 )x

or

$4x = $4,200

or

x = 1,050 buckets

Hence,

option (c) 1,050 buckets