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]