Question

Suppose Dr. Chu decided to open a donuts shop call Dr. Donuts. Dr. Chu is able to source flours at $2 per pound (making 40 donuts), sugars at $5 per pound (making 100 donuts), and butter at $1 per pound (making 100 donuts) While the donuts are not very tasty, Dr. Chu believes he can sell a lot of them by pricing them at $0.36 per donuts. Assuming his rent is $1800 per month, corporate tax of $100 per month, and draws a salary of $200 a day (use 30 days in a month), how many donuts must Dr. Chu sell in a month to break-even.

Answer 1

31,600 donuts

Step-by-step explanation:

Break even point is the level of activity where a company makes neither a profit nor a loss.

Break even point (units) = Fixed Costs ÷ Contribution per unit

where,

Contribution per unit = Sales per unit - Variable Costs per unit

Step 1 : Sales per donut

Sales per donut = $0.36

Step 2 : Variable Cost per Donut

Variable Cost per Donut :

Flours ($2 ÷ 40) $0.05

Sugars ($5 ÷ 100) $0.05

Butter ($1 ÷ 100) $0.01

Total $0.11

Step 3 : Fixed cost per month

Rent $1,800

corporate tax $100

Salary ($200 x 30) $6,000

Total $7,900

therefore,

Break even point = $7,900 ÷ ($0.36 - $0.11)

= 31,600 donuts

Conclusion :

Dr. Chu sell 31,600 donuts in a month to break-even.