Question

Corner Tavern is a small-town bar that sells only bottled beer. The average price of a bottle of beer at the tavern is $3.60 and the average cost of a bottle of beer to the tavern is $1.05. The tavern is open every night. One bartender and two to three waitresses are on duty each night. The fixed costs (salaries, rent, tax, utilities, etc.) total $275,000 per year. (Do not round intermediate calculations. Round the final answers to the nearest whole number.)  

a. The owner wishes to know how many bottles of beer the tavern must sell during the year to start making profit.

No. of bottles

b. What is the revenue at the break-even quantity found in the part a?

Revenue $

c. Not available in connect.

d. If Corner Tavern sells 115,000 bottles of beer a year, would it make a profit? (Hint: Draw the annual revenue and total annual cost vs. the number of bottles of beer sold per year. Make sure that the y-axis is to scale.)

• Yes

• No

e. The owner thinks $50,000 is a reasonable annual profit. How many bottles of beer should the tavern sell to make $50,000 profit?

No. of bottles           

f. An available option is to open the tavern earlier on the weekends. The attraction would be a discount of $0.60 off the regular price. The extra salaries of waitresses and bartender for the whole year are estimated to be $26,000. How many extra bottles of beer must the tavern sell in order to break-even in this option?

No. of extra bottles           

Answer 1

Part a
Sales per unit	$                           3.60
Less:Variable cost per unit	$                           1.05
Contribution margin per unit	$                           2.55
Fixed costs	$                     275,000
Break-even point in units($275,000/$2.55)	107843	bottles
Part b
Revenue at Brea-even qty.(107843.13725490*$3.60)	$                     388,235
Part d
Sales(115,000*$3.60)	$                     414,000
Less:Variable cost(115,000*$1.05)	$                     120,750
Contribution margin	$                     293,250
Fixed costs	$                     275,000
Net Income	$                       18,250
As it can be seen that there is a Income of $18,250. So the answer is YES
Part e
Required Profit	$                       50,000
Less:Fixed Costs	$                     275,000
Required Contribution margin	$                     325,000
Contribution margin per unit	$                           2.55
No. of bottles required to sell($325,000/$2.55)	127451	bottles
Part f
Sales per unit($3.60-$0.60)	$                           3.00
Less:Variable cost per unit	$                           1.05
Contribution margin per unit	$                           1.95
Fixed costs	$                       26,000
Extra bottles to sell($26,000/$1.95)	13333	bottles