A You are considering opening a bagel restaurant aimed prima

A. You are considering opening a bagel restaurant aimed primarily at the breakfast trade. You will sell bagels, coffee, and a pastry in relatively fixed proportions to one another. For each bagel sold, you expect to sell two cups of coffee and one pastry. You will make a profit of $0.50 on each bagel, S0.50 on each cup of coffee, and $1.00 on the pastry. Salaries, equipment, and rent cost about $100,000 per year Q1. Calculate the total profit (from bagel, coffee, and pastry) corresponding to each bagel you sell. Q2. What is the break-even quantity of bagels?

Solution

ANSWER:

1) Profit from selling 1 bagel = $0.50

profit from selling 1 cup of coffe = $0.50

profit from selling 1 pastry = $1.00

when 1 bagel is sold, 2 cups of coffee and 1 pastry is sold.

total profit = profit of 1 bagel + profitr of 1 coffee * no of coffees sold per bagel + profit of 1 pastry = $0.50 + $0.50 * 2 + $1 = $0.50 + $1 + $1 = $2.50

total profit is $2.50

2) break even quantity = total cost / total profit earned when you sell 1 bagel

total cost = $100,000

total profit earned when you sell 1 bagel = $2.50

break even quantity = $100,000 / $2.50 = 40,000

so the break even is 40,000 bagels.