Breakeven by Formula - in the Case of the Cosy Cafe

Question on Breakeven

The Scenario

The Bella Capri runs as an Italian restaurant that specialises in freshly prepared cooked meals.

It is located in premises on a main street of town with seating capacity for 45 customers.

 The lease on the premises is £250 per week.  Business rates are a further £150 each week.  Light, heat and fuel are expected to be £40 per week.  Wage costs for three staff (cook and two waiters) should be £600 per week including all other employment costs.  The restaurant has set their prices so that it is possible to buy a meal for around £16 per head on average.  The cost of the ingredients would be no more than £4 per head.

What will be the breakeven for the Bella Capri?

1. Work it out using a formula

Contribution (£) = Selling Price minus Variable Costs

Break Even = Fixed Costs (£) Contribution per Unit (£)

2. Fill in a table, and put it on a graph Answer

Breakeven by formula

Contribution (£) = £16 (Selling Price) minus £4 (Variable Costs) = £ 12

Break Even = Fixed Costs (£) Contribution per Unit (£)

Fixed Costs per week Lease £ 250.00 Council Tax £ 150.00 Light, heat and fuel £ 40.00 Wages £ 600.00 £ 1,040.00

Break Even (Units) = £1,040 = 87 units £ 12 The basis for the formula is: Fixed costs (£) Selling price (£) – variable costs per meal (£)

Completing a table helps you to draw a breakeven graph:

Breakeven by graph Number of Meals Sold 0 100 200 300 400 500 Sales £ 0 1600 3200 4800 6400 8000 Fixed Costs £ 1040 1040 1040 1040 1040 1040 Variable Costs £ 0 400 800 1200 1600 2000

[See diagram of graph Bella Capri’s breakeven from Word for answer]