GEB Intro to Business - Chapter 14 Break-Even Analysis You just inherited a million dollars from your grandfather

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GEB Intro to Business - Chapter 14
Break-Even Analysis
You just inherited a million dollars from your grandfather. You always had a talent for cooking and 
have long dreamed of opening an expensive gourmet restaurant. You are happy living near your 
college's campus and would like to open a four-star restaurant across the street from the school
Of course, the restaurant would have certain fixed costs; for example, management salaries, 
utilities, interest, license fees, and property taxes. The only variable costs would be the food, 
beverages, and preparation costs. The fixed costs are estimated at $440,000 per year while the 
average variable costs per meal is estimated at $15. These meals would be sold for an average of 
$27 each.
You need to perform a break-even analysis of your proposed business to decide if you should go 
through with your thoughts of opening the restaurant across from the school. Answer the questions 
below. Be sure to review the rubric attached to the assignment to ensure your answers include all 
the requirements.
1. What is a Break-even analysis?
2. What is the formula for calculating the break-even point?
3. How many units will you have to sell each year to break even?
4. Using a 365-day year, how many units will you have to sell each evening to break-even?
5. Considering the college community, does it seem likely that there is a large enough market for 
gourmet food for the restaurant to operate at or beyond the daily break-even point?
6. If you calculate profit as total sales revenue less fixed costs less total variable costs, then how 
much profit will the restaurant earn on sales of 40,000 meals?
7. Do you consider the calculated profit for 40,000 meals to be an adequate amount for you to 
make a living and re-employ assets back into the company to help grow the company? Explain 
your answer.