Problem
Joyce Bluhm is the owner of Best Burger in a small tourist town. There are three specialty burgers on Best Burger's menu (price per burger in brackets); the Best Bacon Burger ($8.75), the Best Double Cheese Burger ($8.00), and the Best Thick Beef Burger ($9.00). Joyce personally inspects each burger and ensures that they are served heaping with toppings to meet customer expectations for an experience they cannot find at other restaurants.
The Best Burger restaurant closes in the winter months when the number of tourists visiting town decreases significantly. Joyce would like to know the minimum number of burgers she needs to sell in order to break even. She intends to use this information to help her determine how long she should continue to operate the restaurant into the fall season. The common fixed costs shown below can be avoided if Joyce closes the restaurant; other fixed costs such as property taxes cannot be avoided and are therefore excluded from the analysis below. Below are the partial financial results of August, the most recent month of operations.
|
|
Best Bacon Burger
|
Best Double Cheese Burger
|
Best Thick Beef Burger
|
Total
|
|
Sales
|
$6,300
|
$11,520
|
$19,440
|
$37,260
|
|
Variable expenses:
|
|
|
|
|
|
Bacon
|
684
|
-
|
-
|
684
|
|
Ground beef
|
1,440
|
2,880
|
9,720
|
14,040
|
|
Cheese
|
-
|
648
|
-
|
648
|
|
Buns
|
72
|
144
|
216
|
432
|
|
Other
|
252
|
504
|
756
|
1,512
|
|
Total variable cost
|
$2,448
|
$ 4,176
|
$10,692
|
$17,316
|
|
Contribution margin
|
$3,852
|
$ 7,344
|
$ 8,748
|
$19,944
|
|
Common fixed expenses
|
|
|
|
8,500
|
|
Operating income
|
|
|
|
$11,444
|
Task
A. Calculate the contribution margin for each burger sold at the Best Burger restaurant.
B. Determine the break-even point in units (round to whole units) required for Joyce to cover all fixed costs, assuming the current sales mix and costs do not change. Create a break-even income statement.
C. Determine the break-even point in sales dollars.