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Using this formula, what is the break-even point? In other words, how many meals, at $7.00, would need to be sold before you start making a profit?
Breakeven Point (number of meals) = Fixed Costs/(Average Order Price - Average Order Cost).
The problem is that, even after being in business for a year, your restaurant is selling slightly less than 1,000 meals. There are several actions that can be taken to reach your break-even point, which is necessary if you are to remain in business.
As the marketing director is responsible for the product, price, promotion, and placement, you control many of the tools to make necessary adjustments. This is the scenerio You are a marketing director for a Mexican Taco Restaurant located in Lynchburg, VA.
The average order size of your customers is $7.00 per order. That means that when all your food orders are divided by your total number of customers, the average order amount is $7.00.
Your variable cost per order is $3.00 in food costs and paper products. Of course, there are also fixed costs (whether you sell one or a hundred). These include your building lease ($2,000 per month, electricity $500 per month, and labor $3,100 per month).
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Breakeven point is the number of units that the company needs to sell in order to start making profits. It is a point where the company makes neither loses nor profits. For the Mexican Taco restaurant, the breakeven point is above 1000 units which the company is presently selling. With average order size of $7 and average order cost, which is also variable cost, of $3, the manager needs to find the breakeven point.