My neighbor, a retired police officer, opened a wine bar on Main Street in Huntington Beach. Hesels
Question:
My neighbor, a retired police officer, opened a wine bar on Main Street in Huntington Beach. Hesels wine by the bottle Let's see if we can estimate whether the business actually makes a and cost beers and crackers and cheese. or by the glass, craft profit using our knowledge of cost behavior and cost-volume-profit analysis. Here are some revenue assumptions: Assume the craft beer sales and food sales are not material to profitability.
The business makes a 100% markup on wine sales whether by the bottle or by the glass. The average bottle of wine costs $20.00 and will pour four glasses. Initial set up costs for the bar such as the marble bar, tables, equipment, wine stands, etc.were $100,000.
The owner signed a 10 year lease. Business hours are 12:00 to 10:00 daily.
Cost Assumptions The bar manager earns a fixed salary of $50,000 per year.
Two servers are required at $15.00 per hour. Rent is $7.50 per square foot per month in a space of 2,500 square feet. Insurance is $3,000 per year. Other overhead costs such as utilities, cleaning, accounting, permits, etc. are estimated at $1,000 per month. ·
1. Compute revenue and direct material cost (variable cost) per glass of wine. All costs besides wine are assumed to be fixed. Initial set up costs are amortized over the life of the lease. List each annual fixed cost.
2. State the general formula you will use to determine the number of elasses of wine sold required to break even.
3. What is the break-even quantity? How much revenue is generated from break-even sales?
4 Prepare a cost-volume chart showing a loss, break-even point and profit.
Expert Answer:
