Calculating Break-Even Point in Chicken Restaurant Business
How many buckets of chicken does the restaurant need to sell to break even each month?
The owner of a small restaurant that sells takeout fried chicken and biscuits each month pays $2,500 in rent, $500 in utilities, $750 interest on his loan, insurance premium of $200, and $250 on advertising on local buses. A bucket of chicken is priced at $9.50. Unit variable costs for the bucket of chicken are $5.50.
Answer:
The restaurant needs to sell 461 buckets of chicken each month to break even.
Total Variable Cost for Producing a Bucket of Chicken
The total variable cost for producing a bucket of chicken is $5.50. This cost includes the cost of ingredients such as the chicken, seasonings, and other ingredients used in the recipe. It also includes the cost of labor required to prepare the chicken and package it for sale. This cost does not include the fixed costs of running the restaurant, such as rent, utilities, interest, insurance premium, and advertising. These fixed costs are necessary to keep the restaurant running, but do not change with the number of buckets of chicken sold. The total cost of a bucket of chicken, including both the variable and fixed costs, is $9.50.