Question

4. Chipotle^TM offers three items: tacos, burritos, and bowls at the price and variable costs below. The restaurant has a fixed cost of $50,000, and average sales for the items are like below. Answer the following.

Item	Price	VC	Sales%
Taco	$7.00	$3.00	25%
Burrito	$8.50	$4.00	40%
Bowl	$8.00	$3.75	35%

1. a) What is the sum of weighted contribution margin % (ΣW_iCM_%i) of Taco, Burrito, and Bowl?

1. b) What is the breakeven sales level in dollars (BE_$) ?

1. c) What is the desired sales revenue (S_$) in order to generate profit of $15,000?

Answer 1

Solution

Chipotle™

a. Determination of the sum of weighted contribution margin percent of Taco, Burrito and Bowl:

Contribution margin = sales – variable cost

Contribution margin percent = (contribution margin/sales) x 100

Weighted contribution margin percent = sum of CM percentages

	Taco	Burrito	Bowl
Sales price per unit	$7	$8.50	$8
Variable cost per unit	$3	$4	$3.75
Contribution margin per unit	$4	$4.50	$4.25
CM percent	57.14%	52.94%	53.13%
sales proportions	25%	40%	35%
sum of weighted contribution margin	=	[(57.14 x 25) + (52.94 x 40) + (53.13 x 35)]	=	54.06%

Hence, sum of weighted contribution margin = 54.06%

b. Determination of break-even sales in dollars:

Break-even sales in dollars = fixed cost/Weighted Contribution margin

Fixed cost = $50,000

Weighted contribution margin = 54.06%

Break-even sales in dollars = 50,000/54.06% = $92,497

c. Determination of desired sales revenue to generate profit of $15,000:

Desired sales revenue = (fixed cost + target profit)/CM ratio

= (50,000 + 15,000)/54.06% = 65,000/54.06%

Desired sales revenue = $120,246