Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales in units?
a. 872 cupsb. 3,611 cupsc. 1,200 cupsd. 1,150 cups

5-48
Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales in units?
Quick Check

5-50Target Profit Analysis in Unit SalesSuppose RBC’s management wants to know how many bikes must be sold to earn a target profit of $100,000.

5-51
Target Profit Analysis in Unit
Sales
The “formula”:
Target profit + Fixed expenses
CM
per unit
=
Unit sales
to attain
the target profit

5-52
Target Profit Analysis in Unit
Sales
Suppose Racing Bicycle Company wants to know how many
bikes must be sold to earn a profit of $100,000.
Target profit + Fixed expenses
CM
per unit
=
Unit sales
to attain
the target profit
Unit sales =
900
$100,000 + $80,000
$200
Unit sales =

5-53
Target Profit Analysis – in $$
Sales
Profit
=
CM ratio × Sales – Fixed expenses
Our goal is to solve for the unknown “Sales,”
which represents the dollar amount of sales
that must be sold to attain the target profit.
Suppose RBC management wants to know the
sales volume that must be generated to earn a
target profit of $100,000.
$100,000
=
40% × Sales – $80,000
40% × Sales = $100,000 + $80,000
Sales = ($100,000 + $80,000) ÷ 40%
Sales =
$450,000

5-54
Target Profit Analysis – in $$
sales
We can calculate the dollar sales needed to
attain a target profit (net operating profit) of
$100,000 at Racing Bicycle.
Target profit + Fixed expenses
CM
ratio
=
Dollar sales
to attain
the target profit
Dollar sales =
$450,000
$100,000 + $80,000
40%
Dollar sales =

5-55
Quick Check
Coffee Klatch is an espresso stand in a downtown
office building. The average selling price of a cup of
coffee is $1.49 and the average variable expense per
cup is $0.36. The average fixed expense per month is
$1,300.
How many cups
of coffee would have to be
sold to attain target profits of $2,500 per month?
a. 3,363 cups
b. 2,212 cups
c. 1,150 cups
d. 4,200 cups

5-56
Coffee Klatch is an espresso stand in a downtown office
building. The average selling price of a cup of coffee is $1.49
and the average variable expense per cup is $0.36. The
average fixed expense per month is $1,300.
How many
cups of coffee would have to be sold to attain target profits of
$2,500 per month.