Question

Rio Coffee Shoppe sells two coffee drinks-a regular coffee and a latte. The two drinks have the following prices and cost characteristics: Sales price (per cup) Variable costs (per cup) Regular Coffee Latte $1.50 $2.50 0.701 .30 The monthly fixed costs at Rio are $6,720. Based on experience, the manager at Rio knows that the store sells 60 percent regular coffee and 40 percent lattes. Required: How many cups of regular coffee and lattes must Rio sell every month to break even? Break-even Sales in Units Regular coffee Lattes

Answer 1

Latte 1 Regular Coffee 2 Sales price (per cup) 1.50 $ 3 Less: Variable Costs (per cup) $ 0.70 $ 4 Contribution Margin (per cup) $ 0.80 $ 2.50 1.30 1.20 5 $ 60% 4,032 6,720 40% 2.688 $ 6 Fixed Costs 7 Sales ratio 8 Fixed costs 9 10 Break even sales in units 11 Break even sales in units 12 Break even sales in units =Fixed Cost / Contribution margin per cup =$4,032 / $0.80 =$2,688 / $1.20 5,040 2.240 13

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