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EDE pr7

The café has fixed costs of $6,300 per month and variable costs of $2 per cup of coffee, with a selling price of $5 per cup. The break-even point is calculated to be 2,100 cups of coffee per month. Selling 2,500 cups would yield a profit of $1,200.

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Samruddhi Bongale
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11 views2 pages

EDE pr7

The café has fixed costs of $6,300 per month and variable costs of $2 per cup of coffee, with a selling price of $5 per cup. The break-even point is calculated to be 2,100 cups of coffee per month. Selling 2,500 cups would yield a profit of $1,200.

Uploaded by

Samruddhi Bongale
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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I own a café that sells coffee, sandwiches, and pastries.

Let's focus on the coffee for this example.

1. Fixed Costs (costs that don’t change regardless of how much coffee you sell):
 Rent: $2,500 per month

 Salaries (for baristas and staff): $3,000 per month


 Utilities (electricity, water, internet, etc.): $500 per month

 Insurance and other fixed costs: $300 per month


 Total Fixed Costs: $2,500 + $3,000 + $500 + $300 = $6,300 per month

2. Variable Costs (costs that change based on the number of coffees you sell):
 Cost of coffee beans per cup: $1

 Milk and other ingredients per cup: $0.50


 Labor (for each cup served, let's assume a small additional variable cost for wages per
cup): $0.50

 Total Variable Cost per Cup: $1 + $0.50 + $0.50 = $2 per cup

3. Selling Price:
 Selling price per cup of coffee: $5

Break-Even Point Calculation:


We can now calculate the break-even point using the formula:

Break-Even Point (in units) =Fixed Costs Selling Price per Unit−Variable Costs per Unit\text
{Break-Even Point (in units)} = \frac{\text{Fixed Costs}}{\text{Selling Price per Unit} -
\text{Variable Costs per Unit}}Break-
Even Point (in units)=Selling Price per Unit−Variable Costs per UnitFixed Costs

Substitute the values:


Break-Even Point=6, 3005−2=6, 3003=2,100 cups of coffee\text {Break-Even Point} =
\frac{6,300}{5 - 2} = \frac{6,300}{3} = 2,100 \text {cups of coffee} Break-
Even Point=5−26,300=36,300=2,100 cups of coffee

So, the café needs to sell 2,100 cups of coffee per month to cover all fixed and variable
costs.

Profit/Loss Analysis:
 If you sell 2,100 cups, you break even (no profit, no loss).
 If you sell more than 2,100 cups, you’ll start making a profit.

 If you sell fewer than 2,100 cups, you’ll incur a loss.


Example Profit Calculation:
Let’s say you sell 2,500 cups of coffee in a month:

 Revenue: 2,500 cups × $5 = $12,500


 Variable Costs: 2,500 cups × $2 = $5,000

 Fixed Costs: $6,300


Profit = Revenue - (Fixed Costs + Variable Costs)

Profit=12,500− (6,300+5,000) =12,500−11,300=1,200\text {Profit} = 12,500 - (6,300 +


5,000) = 12,500 - 11,300 = 1,200Profit=12,500− (6,300+5,000) =12,500−11,300=1,200
So, your profit for the month would be $1,200 if you sell 2,500 cups of coffee.

Conclusion:
 Break-even point = 2,100 cups of coffee

 Selling 2,500 cups results in a profit of $1,200.

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