Question

Jason decided to open a small internet café serving a variety of unusual non alcoholic beverages from around the world. he set a goal to break-even within the first six months and make a moderate profit thereafter. within a week of opening, every seat was filled and he had to replenish inventory several times. at his six-month review, he was devastated to find that despite huge sales, he had actually lost money. his math was not wrong, but he had failed to include monthly expenses such as toilet paper, paper towels, and hand soap in his calculations. these costs should have appeared as __________ in his break-even analysis.

Answer 1

The monthly expenses such as toilet paper, paper towels, and hand soap in Jasons calculations should have appeared as variable costs in his break-even analysis.
Variable costs are costs that change in relation to variations in sales volume and production output. Fixed costs on the other hand do not change with sales volume.