Breakeven by formula - in the case of the Cosy Cafe
Question on Breakeven
The Scenario
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The Bella Capri runs as an Italian restaurant that specialises in freshly prepared cooked meals.
It is located in premises on a main street of town with seating capacity for 45 customers.
• The lease on the premises is £250 per week.
• Business rates are a further £150 each week.
• Light, heat and fuel are expected to be £40 per week.
• Wage costs for three staff (cook and two waiters) should be £600 per week including all other employment costs.
• The restaurant has set their prices so that it is possible to buy a meal for around £16 per head on average.
• The cost of the ingredients would be no more than £4 per head.
What will be the breakeven for the Bella Capri?
1. Work it out using a formula
Contribution (£) = Selling Price minus Variable Costs
Break Even = Fixed Costs (£)
Contribution per Unit (£)
2. Fill in a table, and put it on a graph
Answer
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Breakeven by formula
Contribution (£) = £16 (Selling Price) minus £4 (Variable Costs) = £ 12
Break Even = Fixed Costs (£)
Contribution per Unit (£)
|Fixed Costs per week |
|Lease | £ 250.00 |
|Council Tax | £ 150.00 |
|Light, heat and fuel | £ 40.00 |
|Wages | £ 600.00 |
| | £ 1,040.00 |
Break Even (Units) = £1,040 = 87 units
£ 12
The basis for the formula is: Fixed costs (£)
Selling price (£) – variable costs per meal (£)
Completing a table helps you to draw a breakeven graph:
|Breakeven by graph | | | | | | |
|Number of Meals Sold |0 |100 |200 |300 |400 |500 |
|Sales £ |0 |1600 |3200 |4800 |6400 |8000 |
|Fixed Costs £ |1040 |1040 |1040 |1040 |1040 |1040 |
|Variable Costs £ |0 |400 |800 |1200 |1600 |2000 |
[See diagram of graph Bella Capri’s breakeven from Word for answer]
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