Question

A restaurant is considering adding fresh brook trout to its menu. Customers would have the choice of catching their own trout from a simulated mountain stream or simply asking the waiter to net the trout for them. Operating the stream would require $10,600 in fixed costs per year. Variable costs are estimated to be $6.70 per trout. The firm wants to break even if 800 trout dinners are sold per year. What should be the price of the new item

Answer 1

Answer:

$19.95

Explanation:

Breakeven is where when total Cost = Total Revenue,

Let Selling Price = X

Total Revenue = Total cost

X*800 = 10,600+6.70*800

800x = 15960

Hence, selling Price(X) = 15960/800 = $ 19.95

Answer 2

Answer:

Selling price = $19.95

Explanation:

The break-even point is the level of activity where a business makes no profit or loss. At this level of activity, the total contribution equals the total fixed costs.

To calculate the break even point in a multi product scenario, we use the formula below:

Break-even point (units)= Fixed cost for the period / contribution per unit

800 = 10,600/ y

Cross multiplying

800y = 10,600

800y  = 10,600

800 y = 10,600

y = 10,600/800

y= 13.25

Selling price = contribution + variable cost

= 13.25 + 6.70 = $19.95