Break even analysis:

The costs from Shagun Palace, a continental restaurant, are shown below. Fixed costs are Rs. 50,000 per month.

Break even analysis is applied as applied for the single product case, with weights applied to each products according to the proportions of total sales.

For example, the revenues for pizza are Rs. 700,000 which is 40% of the total revenue of Rs. 1,730,000. Hence the contribution of pizza is weighted by 0.40. The weighted contribution is 0.40 × 0.55 = 0.22. Therefore it reflects the relative contribution.

By using the approach we may find that the total weighted contribution is 0.517 for each rupee sales, and the break even point is

                                BEP_R  = F / ∑ [(1- Vi/ Pi )] × (W_i )

BEP_R = (50, 000 × 12) /0.517

= Rs. 1,160,550

The information simply implies total daily sales (52 weeks at 6 days each) of

1160550 /312 = Rs. 3720

The data given can be used to determine what must be sold each day. For example, the sale forecast of sandwich of 9% times the daily break even of Rs.3720 divided by the selling price of the sandwich (Rs.30), indicates that the sales must be

(0.09 × 3720)/30 = 11.16

Hence, the number of sandwiches should be sold per day is 11.

Posted Date: 1/31/2013 6:01:17 AM | Location : United States

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