Question

Kit Kitchen sells three types of soups: tomato basil, cheddar dill and loaded potato. The following table shows the sales price and variable cost for each type. The restaurant incurs $200,000 a year in fixed costs. Assume that the restaurant has a sales mix of two tomato basil servings, two cheddar dill servings and one loaded potato serving.

Type	Sales Price/u	Variable Cost/u	Contribution Margin/u
Tomato basil	$3.00	$1.50	$1.50
Cheddar dill	$4.50	$2.00	$2.50
Loaded potato	$4.50	$2.50	$2.00

How many servings (units) of each type will be sold at the breakeven point?

What amount of revenue ($) would need to be generated by each type of soup for the company to earn $25,000 in operating income?

Answer 1

Answer a.

Sales Mix = Tomato Basil : Cheddar Dill : Loaded Potato
Sales Mix = 2 : 2 : 1

Overall Contribution Margin per unit = (2/5) * $1.50 + (2/5) * $2.50 + (1/5) * $2.00
Overall Contribution Margin per unit = $2.00

Breakeven Point in units = Fixed Expenses / Overall Contribution Margin per unit
Breakeven Point in units = $200,000 / $2.00
Breakeven Point in units = 100,000

Breakeven Point for Tomato Basil = 100,000 * (2/5)
Breakeven Point for Tomato Basil = 40,000

Breakeven Point for Cheddar Dill = 100,000 * (2/5)
Breakeven Point for Cheddar Dill = 40,000

Breakeven Point for Loaded Potato = 100,000 * (1/5)
Breakeven Point for Loaded Potato = 20,000

Answer b.

Overall Required Sales in units = (Fixed Expenses + Operating Income) / Overall Contribution Margin per unit
Overall Required Sales in units = ($200,000 + $25,000) / $2.00
Overall Required Sales in units = 112,500

Required Sales for Tomato Basil = 112,500 * (2/5)
Required Sales for Tomato Basil = 45,000

Revenue for Tomato Basil = 45,000 * $3.00
Revenue for Tomato Basil = $135,000

Required Sales for Cheddar Dill = 112,500 * (2/5)
Required Sales for Cheddar Dill = 45,000

Revenue for Cheddar Dill = 45,000 * $4.50
Revenue for Cheddar Dill = $202,500

Required Sales for Loaded Potato = 112,500 * (1/5)
Required Sales for Loaded Potato = 22,500

Revenue for Loaded Potato = 22,500 * $4.50
Revenue for Loaded Potato = $101,250