Bella's Burgers sells burgers, fries, and milkshakes. Last month, Bella's Burgers sold $20,000 of burgers, which had associated variable costs of $8,000;$10,000 of fries, which had associated variable costs of $4,000; and $5,000 worth of milkshakes, which had associated variable costs of $2,000. Bella's Burgers had total fixed costs of $6,000. What is Bella's company-wide breakeven point? $21,000 b) $15,000 a) $35,000 4) $10,000

Question

Bella's Burgers sells burgers, fries, and milkshakes. Last month, Bella's Burgers sold  $20,000 of burgers, which had associated variable costs of  $8,000;$10,000 of fries, which had associated variable costs of  $4,000; and  $5,000 worth of milkshakes, which had associated variable costs of  $2,000. Bella's Burgers had total fixed costs of  $6,000. What is Bella's company-wide breakeven point?  $21,000 b)  $15,000 a)  $35,000 4)  $10,000

Bytelearn · Accepted Answer

Calculate Contribution Margin: To find the breakeven point, we need to calculate the total revenue that Bella's Burgers needs to cover both variable and fixed costs.Calculate Total Contribution Margin: First, let's calculate the contribution margin for each product. The contribution margin is the selling price minus the variable cost. We will then sum these up to find the total contribution margin.Find Breakeven Point: For burgers: Contribution margin = Selling price - Variable cost = $20,000 - $8,000 = $12,000.Identify Mistake: For fries: Contribution margin = Selling price - Variable cost = $10,000 - $4,000 = $6,000.Correct Mistake: For milkshakes: Contribution margin = Selling price - Variable cost = $5,000 - $2,000 = $3,000.Now, let's add up the contribution margins to find the total contribution margin: Total contribution margin = $12,000 + $6,000 + $3,000 = $21,000.Finally, to find the breakeven point, we need to cover the total fixed costs with the total contribution margin. So, the breakeven point is when the total contribution margin equals the total fixed costs.Total fixed costs are given as $6,000. Since the total contribution margin is $21,000, this means that Bella's Burgers breaks even when their total sales equal their total costs (variable + fixed).However, we made a mistake in our reasoning. The breakeven point is not when the total contribution margin equals the total fixed costs. The breakeven point is when the total revenue equals the total costs (variable + fixed). We need to find the total revenue that results in a contribution margin that covers the fixed costs.

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