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# Break Even = BE             Cost of ...

Break Even = BE

Cost of Goods Sold Per Unit = CGS

Operating Expenses = OE

Price = P

Gross Margin Per Unit = GM *This number represents the amount of money per unit that can be used to contribute to cover fixed costs and add to profit.

BE = OE / (P-CGS)

GM = (P-CGS)

Use this formula to check your answers

Revenue = Expenses

Revenue = (PRICE * Quantity)

Expenses = (Fixed Costs + (CGS * Quantity)

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Problem 1-5 help you find the units that you would need to sell to break even assuming you knew the costs

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1)         So if the price of a cup of coffee at Clemens Perks costs \$3 and the CGS per unit are \$0.50 what is the Gross Margin?

GM = (P-CGS)

Answer:

2)         If the CGS per unit for coffee at Clemens Perks are \$0.50, the price is \$3, and the Operating Expenses are \$10,000/year.  How many units must Clemens Perk sell to break even in the first year?

BE = OE / (P-CGS)

Answer:

If the CGS per unit for coffee at Clemens Perk decrease to \$0.25 and everything else remains the same as above, now how many units must Clemens Perk sell to break even in the first year?

BE = OE / (P-CGS)

Answer:

3)         If Clemens Perk decided that it wants to make \$5,000 in its first year how many units must it sell to achieve this goals? (assume \$0.50 CGS)

To target a profit level

Profit Target = (OE + profit target) / (P – CGS)

This means

5k Target = (OE + 5,000) / (P – CGS)

Answer:

If Clemens Perk decides that it wants to make \$8,000 in its first year how many units must it sell to achieve this goal?  (Assume \$0.50 Variable costs)

Profit Target = (OE + profit target) / (P – CGS)

Answer:

4)         If Clemens Perk decides that it wants to make \$9,000 in its first year how many units must it sell per month (assuming they are open only 8 months) to achieve this goal?  (Assume \$0.50 Variable costs)

Profit Target = (OE + profit target) / (P – CGS)

Units / Months = Per month number

Answer:

1. If Clemens Perk decides to that it wants to make \$4,500 of profit in its first year how many units must it sell per day (assuming 8 months 4 weeks a month, 7 days a week) in order to break even?  Operating Expenses \$10,000 and CGS \$0.25/cup.

Answer:

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