Question

You are considering opening a donut restaurant aimed primarily at the breakfast market. You plan to sell donuts, coffee, and other items in fixed proportion to one another. For each donut sold, you expect the company to sell two cups of coffee and $2 of other items. You expect to earn $0.50 on each donut, $0.50 on each cup of coffee, and $1.00 on the other items. Salaries, equipment, and rent cost about $100,000 per year. What is the break-even quantity of donuts?

Answer 1

Answer:

Donuts= 28,571

Explanation:

First, we need to determine the sale proportion of each product:

Other items= 2/5= 0.4

Coffe= 2/5= 0.4

Donut= 1/5= 0.2

Now, we can calculate the break-even point in units for the company as a whole:

Break-even point (units)= Total fixed costs / Weighted average contribution margin

Break-even point (units)= 100,000 / (0.5*0.2 + 0.5*0.4 + 1*0.4)

Break-even point (units)= 100,000 / 0.7

Break-even point (units)= 142,857 units

Now, the number of donuts:

Donuts= 0.2*142,857

Donuts= 28,571