Question

You are a grocery store manager. The owner has a lot to say about how your run the store. The owner wants the grocery store to start selling rotisserie chickens. This is a new product. You know that you can buy chickens from a local farmer for $2/chicken and it would take you an additional $0.20/chicken to cook it. The grocery store currently pays $4,000/month in mortgage (unrelated to the chickens) and would spend $300 advertising the new rotisserie chickens. The owner wants to sell the chickens for a 100% markup. 

a. What price does the owner want you to sell the chickens at? 

b. At this price, what is the quantity you'd need to sell in order to break even?

Answer 1

a) Total cost of producing rotisserie chicken = 2+0.2

= $2.2

So, 100% mark up pricing means that the price charged for chicken will be 100% more than the cost of production.

So, the price will be = 2.2 + (100/100)*2.2 = $4.4.

So, the owner wants to sell the chicken at $4.4.

b) The fixed costs associated = $4000 + $300

= $4300

Variable cost for each chicken = $2.2

Price for each chicken = $4.4

In order to breakeven, the total revenue should be equal to the total cost.

So, let the quantity required to be produced in order to breakeven be x.

So, the equation would be,

4300 + 2.2*x = 4.4*x

2.2x = 4300

x = 1954.545

So, the quantity required to breakeven is 1955 units.