Question

As a prospective owner of a club known as the Red​ Rose, you are interested in determining the volume of sales dollars necessary for the coming year to reach the​ break-even point. You have decided to break down the sales for the club into four​ categories, the first category being beer. Your estimate of the beer sales is that 32000 drinks will be served. The selling price for each unit will average $ 1.50​; the cost is $ 1.25. The second major category is​ meals, which you expect to be 12000 units with an average price of $ 12.50 and a cost of $ 5.50. The third major category is desserts and​ wine, of which you also expect to sell 10000 ​units, but with an average price of $ 2.50 per unit sold and a cost of $ 1.00 per unit. The final category is lunches and inexpensive​ sandwiches, which you expect to total 22500 units at an average price of $ 6.00 with a food cost of $ 3.25. Your fixed cost​ (i.e., rent,​ utilities, and so​ on) is $ 2000 per month plus $ 2000 per month for entertainment.

​a) For Red​ Rose, the monthly​ break-even point in dollars​ = ​$ nothing per month ​(round your response to two decimal​ places).

b).What is the expected number of meals each day if you are open 30 days a month?

Answer 1

Break even point(in Units) = Total fixed cost / (Weighted avg. selling price - weighted avg. variable cost)

Total fixed cost = 2000(rent) + 2000 (entertainment)

= 4000

Calculation of weighted avg. selling price per unit

Given information -

	Estimated sale in units		selling price per unit	Cost per unit
Beer	32000	drinks	1.5	1.25
Meals	12000	Units	12.5	5.5
Dessert & Wine	10000	Units	2.5	1
Lunches	22500	Units	6	3.25
Total	76500

sale price of beer * sale % of beer + sale price of meal * sale % of meal + sale price of desert * sale % of dessert + sale price of lunches & sandwiches * sale % of lunches & sndwiches

= 1.50*32000/76500 + 12.50*12000/76500 + 2.5*10000/76500 + 6*22500/76500

= 0.627451 + 1.960784 + 0.326797 + 1.764706

= 4.6797

Calculation of weighted avg. variable cost per unit -

Weighted avg. variable cost =variable expense of beer * sale % of beer + variable expense of meal * sale % of meal + variable expense of desert * sale % of dessert + variable expense of lunches & sandwiches * sale % of lunches & sndwiches

= 1.25*32000/76500 + 5.5*12000/76500 + 1*10000/76500 + 3.25*22500/76500

= 0.522876 + 0.862745 + 0.130719 + 0.955882

= 2.47222

BEP (in units) = 4000/(4.6797 - 2.47222)

= 4000/2.20748

= 1812.02 or 1812 units

BEP in dollar sales = BEP in units*weighted avg. selling price per unit

= 1812*4.6797

= 8480

(b) Expected No.of meals each day = BEP in units * sale % of meals

= 1812*12000/76500

= 1812*0.156863

= 284.24 or 284 units.

Please check with your answer and let me know.