Write a 3-page paper that describes and summarizes the steps and formulas used in calculating break-even. Starbucks Coffee: create two break-even scenarios, one with a single product and one with multiple (at least two) products, and calculate the break-even point for both scenarios, based on Starbucks 2019 financials. Review Starbucks 10k. Be sure to show your calculations and provide a detailed explanation of the scenarios. Include your assumptions: fixed costs, variable costs, sales prices and how they were determined.
Break-even analysis is a great tool to determine how many units need to be produced to break even or make a profit.
The challenge for most of you is that the business you selected is retail – and doesn’t produce specific items. To calculate, we need to look to our sales and more importantly our contribution margin. Then to our fixed costs.
From your statements you will need to determine what expenses are variable and what expenses are fixed – and this will be different depending upon the business you selected.
Remember that variable costs are those that change with additional production – or sales. Fixed costs remain the same, regardless of sales (ie: rent.) So, lets review the following example. I am using the numbers (not the entire example) of Case Study 10.1 on page 214 of your text.
Variable Costs 250,000
Contribution 600,000 (This is the difference between sales and variable costs)
Fixed Costs 535,000
So, how do we determine how much in sales we need to make for our business to break even?
1. Determine the contribution margin % = 600,000/850,000 = 70.6% (rounded) what this means as that as our sales increase, our contribution will increase accordingly, and be 70.6% of whatever the sales are. While that is not always the case in the real world, we will assume it remains constant for the homework. This means our variable costs were 250,000 which when subtracted from 850,000 = $600,000 which was our contribution margin and as calculated about approximately 70.6% of sales. 2. Then, we take our fixed costs and divide by that contribution margin: 535,000/70.6% and determine we must have $758,000 (rounded) in sales to break even. 3. To check our figures, lets take our sales $758,000 and calculate the margin at 70.6% = $$535,000 (rounded.) No coincidence because our contribution margin less our fixed costs should be zero for break even. If we then take $758,000 less our fixed costs of $535,000 we get $223,000 our variable costs.
Type of service-Academic paper writing
Type of assignment-Essay
Pages / words-3 / 825
Number of sources-1
Language style-US English