Cliff runs a restaurant in a small town known for its theatres and tourist attractions. Cliff charges an average of $18 per meal. He estimates his variable costs to be $6 per meal and fixed costs are $12,000 per month. Cliff has the capacity to serve 2,000 meals per month. What is the break-even point expressed as a percent of capacity?

Question

Quizplus · Accepted Answer

The break-even point is calculated by dividing the fixed costs by the contribution margin per unit. The contribution margin per unit is the selling price per unit minus the variable cost per unit, which is $18 - $6 = $12. The fixed costs are $12,000. Therefore, the break-even point in units is $12,000 / $12 = 1,000 meals. To find the break-even point as a percent of capacity, divide the break-even point in units by the capacity and multiply by 100. So, (1,000 meals / 2,000 meals) * 100 = 50%.

Cliff Runs a Restaurant in a Small Town Known for Its