Break-even analysis attempts to determine the volume of sales necessary for a business to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and planning for the coming period.

The general formula for calculating break-even units is:

Break-even Units = Fixed Costs / Price – Unit Variable Cost

1. An important distinction is made in the calculation between fixedetween fixed and variable costs. Fixed costs do not change with the unitssold (at least in the short term). Variable costs depend on theunits sold in the period. Identify each of the following as a fixed(F) or variable (V) cost in the context of BizCafe:

	F or V
Coffee
Advertising
Rent
Salaries
Cups
Utilities

Use the break-even formula to calculate the break-evenunits if fixed costs are $12,000 and you are sellingcoffee for $3.60 at a cost of $0.40 per cup.

3. Using the same fixed and variable costs as in question2, what is the new

break-even point if price is lowered to $2.90?

You can calculate a break-even priceif you have an estimate of the number of units you will sell. Therevised break-even formula is:

Break-even Price= Variable Cost+Fixed Costs / ProjectedUnits

4. Using the fixed and variable costs from question 2, what isthe break

-even price if you project that you will sell 3,000 cups ofcoffee?

5. How can knowing the break-even units help you with otherdecisions?

Answer rating: 100% (QA)

ANSWER Lets address each question one by one Identification of Fixed F or Variable V Costs Coffee Va... View the full answer