Operations Strategy MGMT 707
Break Even Point Case, Sports Bar Assignment:
A) PROFIT = REVENUE PER UNIT * QUANTITY – [TOTAL FIXED COST + (VARIABLE COST PER UNIT * QUANTITY)]
B) BREAKEVEN POINT = TOTAL FIXED COST/(REVENUE PER UNIT – VARIABLE COST PER UNIT)
Arthur and 2 college friends decide to open a sports bar/restaurant in their home town. After some research they determined that the best way to start is to obtain a franchise from a Chicago based company. The company would acquire the land, build and outfit the facility. AJ and friends would pay a monthly comprehensive fee of $10,000. This fee would include the franchise royalty payment, the mortgage payment for the actual facility (that would be paid off in full in 20 years) and all utility fees.
AJ and his 2 friends want to pay themselves $4,000 per month each. The staff would cost $2,000 per week ($200 each for 10 employees). The estimated variable cost per customer is $9.00 each. The forecasted revenue is $24.00 per customer.
What is the breakeven point in number of customers per month for the sports bar/restaurant?
If they served 2,500 customers per month, what would their profit be?