An entrepreneur is considering opening a coffee shop in downtown Cookeville. The

Question

An entrepreneur is considering opening a coffee shop in downtown Cookeville. The building that he is considering will have a monthly lease payment of $3200 and basic utility costs of $600 per month. Two employees will be hired at $10.00/hour/employee (including overhead and benefits). Each employee will work an average of 170 hours per month. The average revenue per customer is estimated at $7.00. The variable cost of serving each customer is estimated at $2.00.
Calculate how many customers per month it will take for the coffee shop owner to breakeven.

A. 457 B. 1440 C. 840 D. 800

Explanation / Answer

Step one : Calculate Fixed Costs : Fixed Costs: Monthly Lease Payments 3200 Utilities 600 Employee Wages 3400 (10 * 2 *170) Total Fixed Costs 7200 Step 2 Calculate Unit contribution: Unit Revenue 7 Unit Variable Cost 2 Unit Contribution 5 Step 3 Calculate BreakEven Point BEP Fixed Cost / Unit Contribution 7200 / 5 BEP 1440

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