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

Alana Mcmillan

8 February, 18:13

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?

Raymond Little · 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