Question

At Jose's Bakersfield Espresso, Jose charges $3.50 for an average cup of espresso. If his fixed cost (salary, insurance, etc.) are $100,000 a year, and the variable cost for each cup of espresso are $1.25.

A) State the total fixed cost

B) State the variable cost

C)State the price

D) Given the available data, at what quantity will Jose's Bakersfield Espresso break even?

Answer 1

A. $100,000

B. $1.25 per unit

C. $3.5 per unit

D. Break even point = 44,444 units

Step-by-step explanation:

Break even point denotes that level of sales at which total costs equal or even total revenues.

Contribution represents the sales revenue in excess of variable costs to cover up for fixed costs.

Break even point in units =
`(Fixed\ Cost)/(Contribution\ per\ unit)`

Contribution per unit = Selling price per unit - Variable cost per unit

Contribution per unit = $3.50 - $1.25 = $2.25

Break even point =
`(100,000)/(2.25)` = 44,444 units approx.