Rio Coffee Shoppe sells two coffee drinks, a regular coffee and a latte. The two

Question

Rio Coffee Shoppe sells two coffee drinks, a regular coffee and a latte. The two drinks have the following prices and cost characteristics: Sales price (per cup) Variable costs (per cup) Regular Coffee Latte $ 2.70 1.70 $ 1.80 0.60 The monthly fixed costs at Rio are $8,352. Based on experience, the manager at Rio knows that the store sells 80 percent regular coffee and 20 percent lattes. Required: How many cups of regular coffee and lattes must Rio sell every month to break even? Break-even Sales in Units Regular coffee Lattes

Explanation / Answer

Given that store sells 80% regular coffee and 20% lattes.

Weighted contribution = $1.20 x 0.80 + $1.00 x 0.20 = 1.16

Break even point = Fixed cost / Weighted contribution

= $8,352 / 1.16

=7200 cups

So, total 7200 cups must be sold to breakeven.

And out of 7200 cups regular coffee should be 5760 cups (7200 x 80%)

Latte should be 1440 cups (7200 x 20%)

Particulars Regular coffee Lattes Sales price (per cup) $1.80 $2.70 Variable costs (per cup) $0.60 $1.70 Contribution margin $1.20 $1.00

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