Question

Please solve the following breakeven analysis problem and show all systems of equations and work. (Excel solver is not neccessary for this problem)

Jim and Pam are going to Culinary School! There are a group of students at the school who are drug dealers, and the Captain has received information that they are looking to start selling a dangerous new street drug to the residents of the town nearby. Jim and Pam infiltrate this group and propose that they use the school’s kitchens in the evening (5-10pm, 7 days/week) to cook and deliver food to the town’s residents and use the deliveries to sell drugs. The group seems to be on board with this plan, so our boys just need to start and operate the business for some time so that they can gather information and evidence for their investigation.

Jim and Pam will need a van for the deliveries, so the Captain agrees to spend $4,300 on a used van for them. In order to look like a legitimate business, they will pay their employees $8/hour for the 5-10pm shifts. For now, they only have one student working each evening. Each delivery will cost $1.35, and they expect that each orders meals will cost $15 on average to prepare and will bring in $34 in revenue.

A. The Captain wants them to wrap up the investigation in 2 months (8 weeks). How many meals would they need to make and deliver to breakeven on the cost of the van?

B. As it turns out, Jim is very talented in the kitchen and really enjoys Culinary School. His crème brulee is the talk of the town. But when the cooking becomes more important to him than the case, it doesn’t look like they’ll be able to wrap up the investigation in 2 months. The Captain is not happy and gives Jim an ultimatum: they only have one more month to gather enough evidence to make the arrests or they’re fired! What is the breakeven point for the business over 3 months (12 weeks)?

Answer 1

Question A. Number of meals required to Break even

Revenue per meal		$34
Unit variable costs:
Delivery cost	$1.35
Cost of meal	$15
Total variable cost		$16.35
Unit Contribution		$17.65
Fixed Costs for two months
Cost of van	$4,300
Payment to employee	$ 2,240	(5hours per day*7days/week*8weeks*$8/hour)
Total Fixed Cost	$6540

Break even quantity=Fixed cost/ unit Contribution =6540/17.65=370.54

Number of meals required to Break even=371

Question Number B:Breakeven Point Over Three Months(12 weeks):

Revenue per meal		$34
Unit variable costs:
Delivery cost	$1.35
Cost of meal	$15
Total variable cost		$16.35
Unit Contribution		$17.65
Fixed Costs for two months
Cost of van	$4,300
Payment to employee	$ 3,360	(5hours per day*7 days/week*12weeks*$8/hour)
Total Fixed Cost	$7,660

Break even quantity=Fixed cost/ unit Contribution =7660/17.65=433.99

Number of meals required to Break even=434