Question

Sam's Sushi serves only a fixed-price lunch. The price of $8 and the variable cost of $4 per meal remain constant regardless of volume. Som con increase lunch volume by opening and staffing additional check-out lones. Som has three choices, as follows. 1 Lane 2 Lanes 3 Lanes Monthly Volume Range (Number of Meals) 2-5, eee 5,881-8,888 8,881-19, Total Fixed Costs $ 21,888 31,eee 36, eee Required: a. Calculate the break-even points) b-1. Calculate the profit (or loss) for each alternative, assuming Sam can sell all the meals he can serve b-2. Should Sam operate at one, two or three lanes?

Calculate Break Even Point for:

Lane 1:

Lane 2:

Lane 3:

Calculate profit loss for:

Lane 1:

Lane 2:

Lane 3:

Should Sam operate at one, two or three lanes?

Answer 1

Required a :
Contribution margin per unit = Selling price per unit - Variable cost per unit = 8 - 4	4

	Break even point [ Total fixed costs / Contribution margin per unit ]
Lane 1 : [ 21000 / 4 ]	5250
Lane 2 : [ 31000 / 4 ]	7750
Lane 3 : [ 36000 / 4 ]	9000

Required b-1 :
	Profit (Loss) [ ( Maximum units - Break even point ) * Contribution margin per unit ]
Lane 1 : [ ( 5000 - 5250 ) * 4 ]	-1000
Lane 2 : [ ( 8000 - 7750 ) * 4 ]	1000
Lane 3 : [ ( 10000 - 9000 ) * 4 ]	4000

Calculate b-2 :

Should Sam operate at one, two or three lanes?

Answer : 3 Lanes