Question

Sam's Sushi serves only a fixed-price lunch. The price of $8 and the variable cost of $3 per meal remain constant regardless of volume. Sam can increase lunch volume by opening and staffing additional check-out lanes. Sam has three choices, as follows.

	Monthly Volume Range (Number of Meals)	Total Fixed Costs
1 Lane	0–5,000	$	27,000
2 Lanes	5,001–8,000		31,000
3 Lanes	8,001–10,000		36,000

Required:

a. Calculate the break-even point(s).

b-1. Calculate the profit (or loss) for each alternative, assuming Sam can sell all the meals he can serve.

b-2. Should Sam operate at one, two, or three lanes?

Answer 1

Answer
Contribution margin per unit = Sales price per unit - variable cost per unit
8-3 = 5
a
Break Even Point = Fixed Cost / Contribution margin per unit
1 lane	27000/5	5400
2 lanes	31000/5	6200
3 lanes	36000/5	7200
The 1 lane break even is not feasible as 5400 is more than the relevant range
The two possible break evens are 6200 and 7200

b.	Meals	Contribution	Fixed costs	Profit/(Loss)
1 lane	5000	25000	27000	-2000
2 lanes	8000	40000	31000	9000
3 lanes	10000	50000	36000	14000

Sam should opearate 3 lanes as it has highest profit.