An entrepreneur is considering opening a coffee shop downtown. The building that

Question

An entrepreneur is considering opening a coffee shop downtown. 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 necessary to hire at $10.00/hour/employee (includes overhead and benefits). On average, each employee will work 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." How many customers would need to be served per month to achieve a monthly profit of $5,000?

Explanation / Answer

Answer:(a) At breakeven, TC = TR

TC = 3200 + 600 + 2(10)(170) + 2x

TR = 7x

Setting TC = TR.

3200 + 600 + 2(10)(170) + 2x = 7x

7200 + 2x = 7x

7200 = 5x

X = 1440 customers/month

(b). TR - TC = 5000

7x - (3200 + 600 + 2(10)(170) + 2x) = 5000

7x - 7200 - 2x = 5000

5x = 12200

X = 2440 customers/month

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