Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Best friends, Nathan and Cody, decided to start their own business which would bring great coffee from all over the world to their local community.Together

Best friends, Nathan and Cody, decided to start their own business which would bring great coffee from all over the world to their local community.Together they have formed Classic Coffee Company, or CCC (assume their coffee shop is located a few miles from our college campus).Nathan is selecting and making the coffee they serve.Cody manages the front and back office; selling coffee to customers, paying employees, and running ads for the coffee shop.

Last year, the company sold 45,000 units and had the below sales and cost figures.

Sales$ 135,000.00

Variable Costs$40,500.00

Contribution Margin$94,500.00

Fixed Costs$49,980.00

Income Before Taxes$44,520.00

Income Tax$13,356.00

Net Income$31,164.00

The team have been in business for a year.With competition rising in the coffee industry, they know that another challenging and competitive year lies ahead of them.They are considering two alternatives and have hired you to help them make some important business decisions.

Alternative 1- Bakery

Facing stiff competition from other coffee and beverage shops, Classic Coffee Company (CCC) is considering expanding its products to include bakery items.CCC would now experience higher average sales amounts per customer since beverage sales may be accompanied with food sales.This would, however, increase the company's variable costs since it would need to purchase the food items from outside vendors.The following data pertains to adding the bakery option:

  • Total sales in the number of units would increase 25% with the added bakery option.
  • The average sales price per unit would increase from the current $3.00 to $5.00 when food sales are added to the coffee shop.
  • The variable cost per unit would increase to $2.50 per unit to account for the added cost of bakery items.
  • There would be an increase in fixed costs of $25,000 for advertising to inform the public of this change.

Question:

1.) What is the: Contribution Margin Ratio:Round % to 3 decimal places (Show work please)

2.) What is the: Break-Even Point in UNITS: (Show work please)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting

Authors: Carl S Warren, James M Reeve, Jonathan Duchac

12th Edition

0538478519, 9780538478519

More Books

Students also viewed these Accounting questions

Question

Explain the various methods of job evaluation

Answered: 1 week ago

Question

Differentiate Personnel Management and Human Resource Management

Answered: 1 week ago

Question

Describe the functions of Human resource management

Answered: 1 week ago

Question

Food supply

Answered: 1 week ago

Question

Mortality rate

Answered: 1 week ago