1. important distinction is made in the calculation between fixed and variable costs.

Fixed costs do not change with the units sold (at least in the short term). Variable
costs depend on the units sold in the period. Identify each of the following as a fixed
(F) or variable (V) cost in the context of BizCafé.
Ans:

Item Cost Type

Advertising F

Coffee V

Cups V

Item Cost Type

Equipment F

Payroll F

Rent F

2. Calculate the break-even units if fixed costs are $12,000 and you are selling coffee
for $3.60 at a cost of $0.40 per cup.
Ans: To calculate the break-even units, we need to determine the number of units that
need to be sold in order to cover the fixed costs.

First, let’s calculate the contribution margin per unit, which is the selling price per unit
minus the variable cost per unit:
Contribution margin per unit = Selling price per unit – Variable cost per unit
= $3.60 - $0.40
= $3.20

Next, we can calculate the break-even units using the formula:

Break-even units = Fixed costs / Contribution margin per unit

= $12,000 / $3.20
= 3,750 units
Therefore, the break-even point is 3,750 units.

3. Using the same fixed and variable costs as in question 2, what is the new break-even
point if the price is lowered to $2.90?
Ans: Now, let’s calculate the new break-even point if the price is lowered to $2.90.

Contribution margin per unit = $2.90 - $0.40

= $2.50

Break-even units = $12,000 / $2.50

= 4,800 units

Therefore, the new break-even point is 4,800 units.

4. Using the fixed and variable costs from question 2, what is the break-even price if
you project that you will sell 3,000 cups of coffee?
Ans: Next, let's calculate the break-even price if we project to sell 3,000 cups of coffee.
Break-even price = (Fixed costs + Variable costs) / Number of units
= ($12,000 + ($0.40 * 3,000)) / 3,000
= $12,000 + $1,200 / 3,000
= $13,200 / 3,000
= $4.40

Therefore, the break-even price is $4.40 per cup.

5. How can knowing the break-even units help you with other decisions?
Ans: Knowing the break-even units can help with many important decisions in several
ways:
 Pricing decisions: By knowing the break-even point, we can calculate the
minimum price at which we need to sell our coffee to cover costs. This
information can help us to determine if our current pricing strategy is sustainable
or if we need to change it.
 Profit analysis: Understanding the break-even point allows us to analyze and
predict the profitability of our cafe. We can compare our actual sales volume to
the break-even point to assess whether we will be making a profit or incurring
losses.
 Cost control: Knowing the break-even point can help us evaluate the impact of
cost reductions or increases. We can identify when to reduce coffee wastage to
reach the break-even point faster or increase our profit margin.

 Investment decisions: If we are considering investing in new equipment or

expanding our cafe, knowing the break-even point can help us assess the
feasibility of the investment. We can determine how much additional revenue or
units we need to generate to cover the increased costs and reach the break-even
point.

 Overall, knowing the break-even units provide valuable insights into our cafe’s
financial health and help us make informed decisions to improve profitability and
sustainability.