As a prospective owner of a club known as the Red Rose you a

As a prospective owner of a club known as the Red Rose, you are interested in determining the volume of sales dollars necessary for the coming year to reach the break-even point. You have decided to break down the sales for the club into four categories, the first category being beer. Your estimate of the beer sales is that 36,000 drinks will be served. The selling price for each unit will average $2.00; the cost is $0.75. The second major category is meals, which you expect to be 10,000 units with an average price of $12.00 and a cost of $5.50. The third major category is desserts and wine, of which you also expect to sell 10,000 units, but with an average price of $2.75per unit sold and a cost of $1.00 per unit. The final category is lunches and inexpensive sandwiches, which you expect to total 20,000 units at an average price of $6.25 with a food cost of $3.25. Your fixed cost (i.e., rent, utilities, and so on) is $2,000 per month plus $2,200 per month for entertainment.

a) For Red Rose, the monthly break-even point in dollars = $____ per month (round your response to two decimal places)

b) If Red Rose is open 30 days per month, then the expected number of meals that need to be sold each day = _____ meals per day

(round to nearest whole number)

correct answer for A is $7712.90--- need someone to please explain how we get there.

Correct answer for B is 7.5 meals. need someone to please explain how we get there

Solution

For Multiproduct Case, the breakeven Point in dollars is obtained as follows:

BEP ($) = Fixed Cost/Total of Weighted Contribution of products

BEP ($) = F/[1-(Vi/Pi) x Wi]

Vi = variable cost per unit for ith product category

Pi = Selling price per unit for ith product category

W = Percent each product category is of total dollar sales

F = Fixed cost

i = each product category

1

2

3

4

5

6

7

8

Product Category

Selling Price

Variable Cost

1 - (V/P)

Expected Sales Volume

Expected Sales Revenue

% of Sales Revenue

Weighted Contribution

P

V

A

= P X A

Wi

= 7 X 4

Beer

2

0.75

0.63

36000

72000

0.2090

0.1306

Meals

12

5.5

0.54

10000

120000

0.3483

0.1887

Desserts & Wines

2.75

1

0.64

10000

27500

0.0798

0.0508

Lunches & SW

6.25

3.25

0.48

20000

125000

0.3628

0.1742

344500

1.0000

0.5443

Total Weighted Contribution (WC) = 0.5443

Fixed Cost = 2000 + 2200 = $4,200 per month

BEP ($) = F/WC = 4200/0.5443 = 7716.80

For Red Rose, the monthly break-even point in dollars = $7,716.80 per month

BEP ($) per day = 7716.80/30 = 257.2267

BEP (units) for meal = [BEP ($) per day x Weighted Contribution of MEALs]/[contribution per unit]

BEP (units) for meal = 257.2267 x 0.1887/(12-5.5) = 7.46

BEP (units) for meal = 7.5 units

1	2	3	4	5	6	7	8
Product Category	Selling Price	Variable Cost	1 - (V/P)	Expected Sales Volume	Expected Sales Revenue	% of Sales Revenue	Weighted Contribution
	P	V		A	= P X A	Wi	= 7 X 4
Beer	2	0.75	0.63	36000	72000	0.2090	0.1306
Meals	12	5.5	0.54	10000	120000	0.3483	0.1887
Desserts & Wines	2.75	1	0.64	10000	27500	0.0798	0.0508
Lunches & SW	6.25	3.25	0.48	20000	125000	0.3628	0.1742
					344500	1.0000	0.5443