Question

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

Answer 1

Answer:

break even point = 3,577 bundles which include:

• 10,731 beers
• 3,577 meals
• 3,577 desserts and wine
• 7,154 lunches and sandwiches

Explanation:

estimated beer sales 30,000

contribution margin per beer = $0.75

estimated meals sales 10,000

contribution margin per meal $5

estimated desserts and wine sales 10,000

contribution margin per dessert and wine $1.50

estimated lunches and sandwiches sales 20,000

contribution margin per lunch and sandwich sales $2

we can make 10,000 bundles consisting of:

3 beer sales = $2.25

1 meal sale = $5

1 dessert and wine sale = $1.50

2 lunches and sandwiches = $4

contribution margin per bundle = $12.75

total fixed costs = $3,800 x 12 months = $45,600

break even point (in bundles) = total fixed costs /contribution margin per bundle = $45,600 / $12.75 = 3,576.47 ≈ 3,577 bundles