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What is the break-even point in sales dollars

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Reference no: EM132763478

Question - Best friends, Nathan and Cody, decided to start their own business which would bring great coffee from all over the world to their local community. Together they have formed Classic Coffee Company, or CCC (assume their coffee shop is located a few miles from our college campus). Nathan is selecting and making the coffee they serve. Cody manages the front and back office; selling coffee to customers, paying employees, and running ads for the coffee shop.

Last year, the company sold 45,000 units and had the below sales and cost figures.

Sales $135,000.00

Variable Costs $40,500.00

Contribution Margin $94,500.00

Fixed Costs $49,980.00

Income Before Taxes $44,520.00

Income Tax $13,356.00

Net Income $31,164.00

The team have been in business for a year. With competition rising in the coffee industry, they know that another challenging and competitive year lies ahead of them. They are considering two alternatives and have hired you to help them make some important business decisions.

Alternative 1- Bakery

Facing stiff competition from other coffee and beverage shops, Classic Coffee Company (CCC) is considering expanding its products to include bakery items. CCC would now experience higher average sales amounts per customer since beverage sales may be accompanied with food sales. This would, however, increase the company's variable costs since it would need to purchase the food items from outside vendors. The following data pertains to adding the bakery option:

Total sales in the number of units would increase 25% with the added bakery option.

The average sales price per unit would increase from the current $3.00 to $5.00 when food sales are added to the coffee shop.

The variable cost per unit would increase to $2.50 per unit to account for the added cost of bakery items.

There would be an increase in fixed costs of $25,000 for advertising to inform the public of this change.

Required -

1) What is the: Break-Even Point in Sales DOLLARS?

2) What is the: Sales Dollars needed to earn target income of $80,000?

Reference no: EM132763478

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