Breakeven Analysis

In: Business and Management

Submitted By allegedlyspiffy
Words 318
Pages 2
Taco Restaurant Breakeven Analysis

November 29, 2015
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Scenario

The problem states that the average order price at a local taco restaurant in Lynchburg, VA is $7.00 per order. The variable costs including food and paper products are $3.00 per order. The fixed costs are $5,600 a month (building lease, electricity, and labor).

Breakeven Formula

Analysis

At this rate, the restaurant requires at least 1,400 orders a month to reach the breakeven point. However, as the problem states, the restaurant is barely making 1,000 orders per month. This means that the restaurant may not last long at this rate and measures must be taken to increase sales and decrease expenses.

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Marketing Plan

The obvious solution is to increase the orders per month from 1,000 to 1,400. However, because of factors such as competition, this may be difficult to do in a short period of time.
I suggest increasing the average order price to $8 by slightly raising prices, and offering customers discounts for purchasing more food with a lower variable cost (i.e nachos, fries, or anything that doesn't cost much to make). A pricing constraint to consider would be the price that customers are willing to pay for your food may not be extremely high depending on the quality of the restaurant. Then, it would be advantageous to decrease the variable costs to $2.50 by purchasing certain food items in bulk if possible.
Next, it may be possible to renegotiate a lease price. If a longer lease is signed (1 year or longer) you may be able to negotiate a lease at $1,850 a month.

New Formula

With the new pricing, the restaurant should reach breakeven point with just 990 orders a month - which the restaurant already has. However, in my opinion the restaurant can do other things to increase…...

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