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 $ 1.70 $ 2.80 0.70 1.20 The monthly fixed costs at Rio are $7,616. Based on experience, the manager at Rio knows that the store sells 80 percent regular coffee and 20 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

Answer

--Working

		Regular Coffee	Latte
A	Sale price	$1.70	$2.80
B	variable cost	$0.70	$1.20
C = A - B	Contribution margin	$1.00	$1.60
D	Sales Mix %	80%	20%
E = C x D	Weighted Average CM per unit	$0.80	$0.32

--Calculation and answer

A	Fixed Cost	$7,616
B	Total Weighted Average CM per unit	$1.12
C = A/B	Total Break even units	6,800
	Break even for:
D = C x 80%	Regular Coffee	5,440	Answer
E = C x 20%	Lattes	1,360	Answer