Question

3 4 5 b Delete { Y U Р 0 т T E R S Part 2: Break-Even Analysis (Multiproduct Model) West Side Deli is a local family-owned restaurant that has built up a reputation of providing high quality lunches to its customers. Cassandra has been able to effective use the multiprod- uct Break-Even analysis to analyze the deli's current product offerings, and now wants to plan for a future addition: cupcakes! After reviewing the most recent product financials and pro- jections for cupcakes, she has compiled the following information: • Sandwiches: selling price = $5.00 per sandwich; variable cost-$2.00 per sandwich; annual forecasted sales units = 20,000 sandwiches • Soups: selling price = $3.50 per soup: variable cost = $1.50 per soup; annual forecast- ed sales units = 25,000 soups Drinks: selling price $2.00 per drink; variable cost-$1.25 per drink; annual fore- casted sales units = 38.000 drinks • Cupcakes: selling price = $4.00 per cupcake; variable cost $1.50 per cupcake; annual forecasted sales units = 17,000 cupcakes The overall monthly fixed costs are $3,750 per month. Note that West Side Deli operates Monday - Friday (i.e., 5 days per week) and is closed two weeks per year (i.e., 50 weeks per year). vel Please use this information to solve the following problems. For each question, you may use an Excel Spreadsheet to assist with your calculations and upload this spreadsheet to Can- vas). Please also provide sample manual calculations as indicated below. (a) Determine the annual revenue Break-Even Point (BEP) for West Side Deli. Please write out the manual calculations for at least one full product line (e.g., Cupcakes). Also, show the manual setup and work for the final BEPs calculation. - (25 points) (b) Determine the daily revenue Break-Even Point (BEP) for West Side Deli. Please show the manual setup and work for the final BEPs calculation. - (10 points) (c) Determine the daily volume Break-Even Point (BEP) for each menu item at West Side Deli. Please show the manual setup and work for at least one of the final BEP, calcula- tions (i.e., at least one menu item). - (15 points)

Answer 1

Solution:

a) Annual revenue Break Even Point West side deli is

Break even sales = Fixed cost/ Contribution margin

Contribution Margin = Annual sales - Variable cost / monthly sales

Here annual revenues for 4 product is

Sandwiches = selling price $5 , variable cost $2 and annual forcasted sales unit = 20000

Soups = selling price =$ 3.50 , variable cost $1.50 and sales unit =25000

Drinks = selling price $ 2, variable cost $1.25 and sales unit 38000

Cupcakes = selling price $4, variable cost $ 1.50 and sales unit = 17000

Fixed cost = $3750 per month

annual fixed cost = 3750*12 = 45000

Total sales = 20000*5 + 25000*3.5 + 38000*2 + 17000*4

= 100000 + 87500 + 76000 + 68000 = $ 331500

Total variable cost = 20000*2 + 25000*1.5 + 38000*1.25 + 17000*1.5

= 40000 + 37500 + 47500 + 25500 = $ 150500

Annual revenue Break even point = Fixed cost / Contribution margin

Contribution margin = Annual sales - Variable cost/ Annual sales

= 331500 - 150500/331500

= .55 = 55%

Break even point = 45000/ 55%

= $ 81818

Annual Break even point based on units = Fixed cost /sales per unit - variable cost per unit

sales per unit = total sales / total units = 331500/110000 = 3/unit

variable cost per unit = 150500/110000 = 1.30 /unit

Break even point = 45000/ 3-1.3 = 26470 units

Anual revenue Break even point of Sandwiches =

= Fixed cost / Contribution margin

Contribution margin = Annual sales - Variable cost / Annual sales

= 20000*5 - 20000*2 / 20000*5

= 100000 - 40000 / 100000

= 60000/100000 = .6 = 60%

Break even point = 45000/ 60% = $75000

b) Daily revenue Break even point

= Fixed cost / Contribution margin

Contribution margin = Daily sales - Daily variable cost / Daily sales

Daily sales = 331500 /250 (50 weeks * 5 days)

= 331500/250 = $1326

Daily variable cost =150500 / 250

= $602

Contribution margin = 1326 - 602 / 1326 = .55 = 55%

Daily revenue Break even point = 45000 / 55% = $81818

c) Daily volume Break even point of each item

1.Sandwiches

Daily Break even point volume = Fixed cost / Sales per unit - Variable cost per unit

= 45000/ 5- 2

= 45000 / 3

= 15000 units

2. Coupes   

Daily Break even point volume = 45000/ 3.5 - 1.5

=45000 / 2

= 22500 units

3. Drinks

Daily Break even point volume = 45000 / 2-1.25

= 45000/ .75

= 60000 units

4. Cup cakes

Daily Break even point volume = 45000 / 4 - 1.5

= 45000 / 2.5

= 18000 units