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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