The owner of a small restaurant that sells take-out fried chicken and biscuits pays $2,500 in rent each month, $500 in utilities, $750 interest on his loan, insurance premium of $200, and advertising on local bus $250 a month. A small bucket of take-out chicken, the only menu item, is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50. At what level of sales of dollars of revenue will the restaurant break even?
A)$9,386.00
B)$9,975.00
C)$19,925.00
D)$9,500.00

Question

Quizplus · Accepted Answer

To calculate the break-even point, we need to find out how many units must be sold to cover all fixed and variable costs.

First, let's calculate the total monthly fixed cost:

Rent + Utilities + Interest + Insurance + Advertising = $2,500 + $500 + $750 + $200 + $250 = $4,200

Next, let's calculate the unit contribution margin, which is the difference between the selling price and variable cost per unit:

Unit contribution margin = Selling price - Variable cost per unit = $9.50 - $5.50 = $4

Finally, we can use the following formula to calculate the break-even point in units:

Break-even point (in units) = Total fixed costs ÷ Unit contribution margin

Break-even point (in units) = $4,200 ÷ $4 = 1,050

So the restaurant needs to sell 1,050 buckets of take-out chicken to break even.

To find out the break-even point in sales revenue, we can simply multiply the break-even point in units by the selling price per unit:

Break-even point (in sales revenue) = Break-even point (in units) x Selling price per unit

Break-even point (in sales revenue) = 1,050 x $9.50 = $9,975

Therefore, the correct answer is B) $9,975.00.

The Owner of a Small Restaurant That Sells Take-Out Fried