Rio Coffee Shoppe sells two coffee drinks—a regular coffee and a latte. The two drinks have the following prices and cost characteristics: Regular Coffee Latte Sales price (per cup) $ 1.50 $ 2.80 Variable costs (per cup) 0.80 1.70 The monthly fixed costs at Rio are $5,148. Based on experience, the manager at Rio knows that the store sells 80 percent regular coffee and 20 percent lattes. Required: How many cups of regular coffee and lattes must Rio sell every month to break even?

Rio Coffee Shoppe

Break-even point in units:

Break-even point for firm = Fixed costs/Contribution per unit

= $5,148/$1.80 = 2,860 units

Regular Coffee = 80% of 2,860 = 2,288 units

Lattes = 20% of 2,280 = 572 units

Explanation:

a) Data and Calculations:

                                          Regular Coffee    Latte

Sales price (per cup)                  $ 1.50          $ 2.80

Variable costs (per cup)               0.80              1.70

Contribution                               $0.70            $1.10        

Fixed cost                                                                       $5,148

Break-even point = Fixed costs/Contribution per unit

Regular Coffee = 80% of $5,148 = $4,118.40

Break-even point = $4,118.4/$0.70 = 5,884 units

Lattes = 20% of $5,148 = $1,029.60

Break-even point = $1,029.60/$1.10 = 936 units

b) The break-even point is the unit of sales required to cover the fixed costs with the contribution so that Rio Coffee Shoppe makes no profit or loss.