Asked by Ikhlas Salih on Jun 07, 2024
Verified
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?
A) 75%
B) 80%
C) 50%
D) 60%
E) 70%
Break-even Point
The production level or sales volume at which total revenues equal total costs, resulting in no profit or loss.
Variable Costs
Costs that vary directly with the level of production or the volume of output.
Fixed Costs
Costs including rent, salaries, and insurance that stay the same regardless of production or sales amounts.
- Comprehend and compute the break-even points in both units and monetary terms.
- Evaluate how capacity utilization influences net income and the calculation of break-even points.
Verified Answer
OL
Okta Liana SihalohoJun 12, 2024
Final Answer :
C
Explanation :
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%.
Learning Objectives
- Comprehend and compute the break-even points in both units and monetary terms.
- Evaluate how capacity utilization influences net income and the calculation of break-even points.