Break Even = BE

Cost of Goods Sold Per Unit = CGS

Operating Expenses = OE

Price = P

Gross Margin Per Unit = GM *This number represents the amount of money per unit that can be used to contribute to cover fixed costs and add to profit.

BE = OE / (P-CGS)

GM = (P-CGS)

Use this formula to check your answers

Revenue = Expenses

Revenue = (PRICE * Quantity)

Expenses = (Fixed Costs + (CGS * Quantity)

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Problem 1-5 help you find the units that you would need to sell to break even assuming you knew the costs

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1) So if the price of a cup of coffee at Clemens Perks costs $3 and the CGS per unit are $0.50 what is the Gross Margin?

GM = (P-CGS)

Answer:

2) If the CGS per unit for coffee at Clemens Perks are $0.50, the price is $3, and the Operating Expenses are $10,000/year. How many units must Clemens Perk sell to break even in the first year?

BE = OE / (P-CGS)

Answer:

If the CGS per unit for coffee at Clemens Perk decrease to $0.25 and everything else remains the same as above, now how many units must Clemens Perk sell to break even in the first year?

BE = OE / (P-CGS)

Answer:

3) If Clemens Perk decided that it wants to make $5,000 in its first year how many units must it sell to achieve this goals? (assume $0.50 CGS)

To target a profit level

Profit Target = (OE + profit target) / (P CGS)

This means

5k Target = (OE + 5,000) / (P CGS)

Answer:

If Clemens Perk decides that it wants to make $8,000 in its first year how many units must it sell to achieve this goal? (Assume $0.50 Variable costs)

Profit Target = (OE + profit target) / (P CGS)

Answer:

4) If Clemens Perk decides that it wants to make $9,000 in its first year how many units must it sell per month (assuming they are open only 8 months) to achieve this goal? (Assume $0.50 Variable costs)

Profit Target = (OE + profit target) / (P CGS)

Units / Months = Per month number

Answer:

5. If Clemens Perk decides to that it wants to make $4,500 of profit in its first year how many units must it sell per day (assuming 8 months 4 weeks a month, 7 days a week) in order to break even? Operating Expenses $10,000 and CGS $0.25/cup.

Answer: