An entrepreneur is considering opening a coffee shop in downtown Cookeville. The
ID: 1247437 • Letter: A
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
Problem 3
Using the information given in Problem 2 calculate how many customers would need to be served per month to achieve a monthly profit of $5,000?
A. 2440 B. 1355 C. 1445 D. 1200
Explanation / Answer
Fixed costs are 3,200+ 600 +2*10*170= 7,200. Variable margin is $7-$2= $5. So breakeven is 7,200/5= 1,440 (b). For a monthly profit of $5,000 you need 5,000/5= 1,000 more customers, so answer is 1,440 +1,000= 2,440 (a).