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