An entrepreneur is considering opening a coffee shop in downtown Cookeville. The building that he is considering will have a monthly lease payment of $3200 and basic utility costs of $600 per month. Two employees will be hired at $10.00/hour/employee (including overhead and benefits). Each employee will work an average of 170 hours per month. The average revenue per customer is estimated at $7.00. The variable cost of serving each customer is estimated at $2.00. Calculate how many customers per month it will take for the coffee shop owner to breakeven.

A. 457 B. 1440 C. 840 D. 800

Question

Business

Mckenzie Peters

13 July, 12:13

An entrepreneur is considering opening a coffee shop in downtown Cookeville. The building that he is considering will have a monthly lease payment of $3200 and basic utility costs of $600 per month. Two employees will be hired at $10.00/hour/employee (including overhead and benefits). Each employee will work an average of 170 hours per month. The average revenue per customer is estimated at $7.00. The variable cost of serving each customer is estimated at $2.00. Calculate how many customers per month it will take for the coffee shop owner to breakeven.

A. 457 B. 1440 C. 840 D. 800

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Answers (1)

Know the Answer?

Aidan Schmitt · Answer 1

The correct option is B, 1440.

Explanation:

In order for the coffee shop to break even, it must serve the number of customers that could enable it must cover all fixed monthly costs i. e lease payment of $3,200, basic utility costs of $600 as well as the wages of the two employees which sums to be $3,400 ($10*170*2)

Breakeven number of customers=fixed costs / (revenue per customer-variable cost per customer)

total fixed costs=$3,200+$600+$3,400=$7200

revenue per customer is $7

variable of serving a customer is $2

breakeven number of customers=$7,200 / ($7-$2) = 1,440 customers

The correct option is B, 1440 customers