At a recent get together, a longtime friend brought various types of cookies as a dessert. I have never tasted cookies of this high caliber before. My friend never thought anything special of the cookies given she has been baking these since she was a small child. I shared with her that "Cookies from Home," a profitable company based in Tempe, Arizona, started by the encouragement of friends. Intrigued, my friend stated she would like to learn more. She would like some assistance in understanding how to start and operate a business of this nature. In exchange for a 2% ownership in the company, I agree to help her develop a business plan so that she can start her own business baking, marketing, and selling these cookies. I must explain the process of determining the breakeven point for the business, estimating the monthly fixed costs to establish this company including equipment, rent, insurance, and other fixed costs, estimate variable costs per batch of cookies, identifying all variable costs, calculating the breakeven point and identify required sales revenue to reach this point and develop a realistic proforma income statement of a profitable business venture which would pay my friend a salary of $ 50,000 per year.

The Process of Determining the Breakeven Point for a Business

A business's break-even point is the stage at which the revenues or income equals the company's costs. To break-even is to calculate and examine the margin of safety for an entity based on the revenues collected and associated costs of the company. This shows how many cookie sales are needed to pay for the cost of keeping the business running. The break-even analysis determines what level of sales are needed to cover the company's total fixed costs.The

formula considers both fixed and variable costs relative to unit price and profit. The total variable cost is calculated by multiplying the cost to produce one unit by the number of units you produced. For example, if it costs $96 to produce one unit and 30 units are made, then the total variable cost would be 96 x 30 = $2,880. Fixed Costs (Price - Variable Costs) = Break-Even Point in Units.

Estimate Monthly Fixed Costs to Establish This Company Including Equipment, Rent, Insurance, and Other Fixed Costs. The monthly fixed cost to establish

A fixed cost can be defined as cost that are the same amount every month. They are costs that are independent of volume and are based on time. For example, rent is a monthly cost that will continue to be due every month. The estimated monthly fixed cost for establishing a booking baking company including equipment, rent, insurance, and other fixed cost could range anywhere from $4,700. This includes baking equipment costs of $2,000, Rent at $1,400, Insurance at $300, and other unexpected costs of $1,000. Below is a chart that reflects the total mostly costs of operating a cookie baking company

Monthly Budget	Monthly Cost's
Rent	$1400
Equipment Costs	$2000
Insurance	$300
Unexpected Costs	$1000
Total Monthly Cost's	$4700

Variable Costs per Batch of Cookies, Identifying All Variable Costs

A variable cost can basically be defined as a cost that varies with the level of output. It will change as the demand for cookies changes. A batch can range anywhere from 24-36 cookies and a cookie can cost anywhere from $3 to $6. For this, we will say a batch of cookies is 24 cookies and each cookie cost $4. This means that a batch of cookies cost about $96.

Variable Cost	Variable Cost Per Batch
Materials	$ 22.00
Labor	$ 22.00
Overhead Costs Total Variable Cost per batch (24 Cookies)	$ 15.00 $59.00

Break Even Point

Cookies can be sold as a single, a half dozen or a dozen. A single cookie could be sold at $6. This means a half dozen of cookies would cost $36 and a dozen cookies would cost $72. A batch of cookies is two dozen, which would cost $144. Like stated above, he cookie company will need to make 49 batches of cookies to cover their monthly fixed costs of $4700. This means 1,175 cookies must be sold at minimum, each month in order to break even.

Break Even
Batch of cookies	$144.00
1 Dozen Cookies	$72.00
Total batches needed to break even	49

Proforma income statement of a profitable business venture which would pay a salary of $50,000 per year

With a batch of cookies representing 24 single cookies, a total of 350 batches of cookies must be sold each day in order to earn a salary of $50,000 per year. 350 batches of cookies are broken down into 25 dozen cookies. This is a total of 300 cookies that would need to be sold in order to meet this desired salary.