When Patricia Flagg's friend asked her create something to sell at a holiday boutique food booth, she had no idea she was launching a new business. For her initial product she packaged eleven different kinds of beans, some herbs, and some spices with directions to add a ham hock, water, and vegetables for Minnesota Heartland soup. She has since added Illinois Prairie Corn chowder, which has dry corn, rice, and seasonings, as well as a Louisiana Red Bean gumbo mix and a New England fish soup mix. Each mix makes enough to feed 10 people. Her annual fixed costs are $9,000, and the variable costs for one bag of soup mix are $1.50. An individual bag of soup mix sells for $6.50. In her first year of operation, she sold 3,800 mixes.
-What is her break-even point in packages of dry soup mix?

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. Here, it is $6.50 - $1.50 = $5.00. The break-even point is $9,000 / $5.00 = 1,800 packages.

When Patricia Flagg's Friend Asked Her Create Something to Sell