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

a) We are given the following information

Total sales = 36000*2 + 10000*12 + 10000*2.75 + 20000*6.25 = 344,500

Total variable cost = 36000*0.75 + 10000*5.5 + 10000*1 + 20000*3.25 = 157,000

Total Fixed cost per month = 2000+2200 = 4,200

Total number of units sold = 36000+10000+10000+20000 = 76,000 units

Average selling price = 344,500/76,000 = 4.53

Average veriable cost = 157,000/76,000 = 2.07

Breakeven point in volume = Fixed cost / (Average Selling price - Average variable cost)

= 4,200 / (4.53-2.07)

= 1702 units (rounded off)

Monthly breakeven point in dollars = 1702*4.53 = $ 7712.90 (rounded off)

b) Expected number of meals that need to be sold per month = (1702*10000/76000) = 224

Expected number of meals that need to be sold per month = 224/30 = 7.5 meals (rounded off)