Question

Spicyfruit is a brand of fruit smooth cart that sells Tajin seasoned fruit smoothies at a variety of events and locations across South East USA. Recently you spotted a Spicyfruit cart during a visit to a Florida beach. On this beach, street vendors offer a variety of foods and drinks. At the Spicyfruit cart, beach goers can purchase a 20-ounce smoothie for $4.00. For the purpose of this hypothetical example, let’s assume that the variable cost of each smoothie sold is $1.00. There are three options of obtaining a Spicyfruit cart.

Option 1: Pay a fixed rental fee to the Spicyfruit Company for $2,100 per month

Option 2: Pay a fee of $1,040 per month plus 10% of all revenue from smoothie sales

Option 3: Pay 25% of all revenue from the smoothie sales to Spicyfruit Company

Using the hypothetical Spicyfruit example, calculate the number of smoothies that the operator of a Spicyfruit cart has to sell each month to break-even if he/she decides to obtain the cart through option 1.

Group of answer choices

A. 400

B. 700

C. 347

D. 525

Answer 1

To break-even with a fixed rental fee of $2,100 per month, the operator of a Spicyfruit cart must sell 700 smoothies, as the contribution margin per smoothie is $3.00, which accounts for the price minus the variable cost.

Step-by-step explanation:

The subject of this question is related to break-even analysis in the context of a business operation. Specifically, we need to calculate the number of smoothies that the operator of a Spicyfruit cart must sell to break-even with the first option of a fixed rental fee of $2,100 per month.

To do this calculation, we need to consider the fixed costs and the contribution margin. The fixed cost here is the monthly rental fee of $2,100. The contribution margin is the price of one smoothie ($4.00) minus the variable cost of one smoothie ($1.00), which equals $3.00.

To calculate the break-even point in units, we divide the fixed cost by the contribution margin per unit:
Break-even point in units = Fixed costs / Contribution Margin per unit
Break-even point in units = $2,100 / $3.00
Break-even point in units = 700 smoothies.

Therefore, the operator would need to sell 700 smoothies in a month to break-even, making option B the correct answer.