Rio Coffee Shoppe sells two coffee drinks—a regular coffee and a latte. The two drinks have the following prices and cost characteristics:
Regular Coffee Latte
Sales price (per cup) $1.80 $2.30
Variable costs (per cup) 0.70 1.10
The monthly fixed costs at Rio are $7,458. Based on experience, the manager at Rio knows that the store sells 70 percent regular coffee and 30 percent lattes.
Required:
a. How many cups of regular coffee must Rio sell every month to break even?
b. How many cups of lattes must Rio sell every month to break even?
a. $4,620
b. $1,980
Explanation:
The computation of cups of regular coffee must Rio sell every month to break even is shown below:-
Particulars Regular Coffee Latte
Sales price $1.80 $2.30
Variable costs $0.70 $1.10
Contribution
margin $1.1 $1.2
Contribution margin per mix = ($1.1 × 70%) + ($1.2 × 30%)
= $0.77 + 0.36
= $1.13
Breakeven point sales mix = Fixed cost ÷ Contribution margin
= $7,458 ÷ $1.13
= $6,600
cups of regular coffee required for breakeven = Breakeven at sales mix × Percentage of regular coffee sale
= $6,600 × 70%
= $4,620
b. The computation of cups of lattes required to breakeven is shown below:-
Cups of latte required for breakeven = Breakeven at sales mix × Percentage of latte
= $6,600 × 30%
= $1,980
(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.
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