I have to read an article called \"Expresso Espresso\" and use the information i
ID: 2758309 • Letter: I
Question
I have to read an article called "Expresso Espresso" and use the information in the case to calculate the monthly breakeven in sales and units. How muchwould Expresso Espresso need to increase its April sales or units to breakeven? Can anybody help?
Listed below are formulas that might prove helpful in the calculations. Clearly label and type the calculations (showing all work) with your name in the upper left-handcorner. You should be able to show both sets of calculations on a single page. BE in Sales = Fixed Cost/(1-COGS%)BE in Units = Fixed Costs/Contribution per unit Where CPU = Avg. Price per Unit – Avg. Variable cost per Unit Avg. Price per Unit = Total Sales/Units Avg. Variable cost per Unit = COGS/Units
Explanation / Answer
Breakeven is a situation of no profit no loss, that is to say where the revenues meet the costs exactly. Basically there are two types of cost : Variable cost and fixed cost , variable cost varies with each unit of output while fixed cost would remain same irrespective of the output.
To achieve breakeven we need to cover both the costs, variable cost when subtracted from selling price gives us the contribution margin , it is the contribution margin which will now recover the fixed costs. We could calculate the breakeven sales i.e. to say the sales which would cover all the costs in terms of units or in terms of currency
Breakeven in terms of sales figure = Fixed cost / contribution margin ratio , for example the fixed cost is 100000 , a unit is sold at 100 and variable cost is 80, so contribution would be 20 and contribution margin 20 % , So the sales amount to breakeven would be 100000/20% = 500000
Breakeven in terms of units would be Fixed cost/ contribution per unit , for example the fixed cost is 100000 , a unit is sold at 100 and variable cost is 80, so contribution would be 20 per unit , so the sales unit to breakeven would be 100000/20 = 5000 units.