Question

Break Even = BE

            Cost of Goods Sold Per Unit = CGS

            Operating Expenses = OE

            Price = P

Gross Margin Per Unit = GM *This number represents the amount of money per unit that can be used to contribute to cover fixed costs and add to profit.

            BE = OE / (P-CGS)

            GM = (P-CGS)

            

            Use this formula to check your answers

Revenue = Expenses

Revenue = (PRICE * Quantity)

Expenses = (Fixed Costs + (CGS * Quantity)

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Problem 1-5 help you find the units that you would need to sell to break even assuming you knew the costs

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1)         So if the price of a cup of coffee at Clemens Perks costs $3 and the CGS per unit are $0.50 what is the Gross Margin?

            GM = (P-CGS)

            

            Answer:

2)         If the CGS per unit for coffee at Clemens Perks are $0.50, the price is $3, and the Operating Expenses are $10,000/year.  How many units must Clemens Perk sell to break even in the first year?

            BE = OE / (P-CGS)

            

            Answer:

If the CGS per unit for coffee at Clemens Perk decrease to $0.25 and everything else remains the same as above, now how many units must Clemens Perk sell to break even in the first year?

            BE = OE / (P-CGS)

            Answer:

3)         If Clemens Perk decided that it wants to make $5,000 in its first year how many units must it sell to achieve this goals? (assume $0.50 CGS)

            To target a profit level

            

            Profit Target = (OE + profit target) / (P – CGS)

            This means

            5k Target = (OE + 5,000) / (P – CGS)

            Answer:

If Clemens Perk decides that it wants to make $8,000 in its first year how many units must it sell to achieve this goal?  (Assume $0.50 Variable costs)

            

            Profit Target = (OE + profit target) / (P – CGS)

            Answer:

4)         If Clemens Perk decides that it wants to make $9,000 in its first year how many units must it sell per month (assuming they are open only 8 months) to achieve this goal?  (Assume $0.50 Variable costs)

            

            Profit Target = (OE + profit target) / (P – CGS)

            Units / Months = Per month number

            Answer:

5. If Clemens Perk decides to that it wants to make $4,500 of profit in its first year how many units must it sell per day (assuming 8 months 4 weeks a month, 7 days a week) in order to break even?  Operating Expenses $10,000 and CGS $0.25/cup.

Answer:

Answer 1

Break Even Sales: It is the volume of sales at which the total cost is equal total revenue

Ans1 Gross Margin Price Cost of good sold per unit 3.00 ($0.50 $2.50 $3.00 ($0.50 $2.50 Price Less: Cost Gross Margin $3.00 $0.25 $3.25 Ans 2 a Price (P) Less: Cost (CGS) Gross Margin (GM) Ans 2 b Price (P) Less: Cost (CGS) Gross Margin (GM) Operating Expense (OE) $10,000 Operating Expense (OE) $10,000 Break Even (BE) $10000/$2.50] Desired Profit Add: Operating Expense 4,000 units Break Even (BE) [$10000/$3.25] Desired Profit Add: Operating Expense 3,077 units $5,000 $10,000 $15,000 $8,000 $10,000 $18,000 Ans 3 a Ans 3 b Total Total Break Even (BE) $15000/$2.50] Desired Profit Add: Operating Expense Break Even (BE) $18000/$2.50] Desired Profit Add: Operatigxpse 6,000 units 7,200 units $90,000 $10,000 $100,000 Ans 4 a Ans 4 b $4,500 $10,000 $14,500 Total Total Break Even (BE) [$100000/$2.50] Break Even (BE) [$100000/(S3-$.25)] 40,000 units 5,273 units Units per month 40000/8] Units per day [40000/(8x4x7)] 5000