Break-Even Analysis
The break-even analysis is a method of determining the level of sales or output at which a business or a product will neither make a profit nor incur a loss. The break-even point (BEP) is the point where the total revenue equals the total cost. The margin of safety (MOS) is the difference between the actual or expected sales and the break-even sales. The MOS indicates how much sales can drop before the business or product starts to lose money.
The break-even analysis can be performed using either a graphical or an algebraic approach. The graphical approach involves plotting the total revenue and total cost curves on a graph and finding the point where they intersect. The algebraic approach involves using formulas to calculate the BEP and MOS. The formulas are as follows:
BEP (in units) = Fixed Cost / Contribution Margin per Unit
BEP (in dollars) = Fixed Cost / Contribution Margin Ratio
MOS (in units) = Actual or Expected Sales (in units) - BEP (in units)
MOS (in dollars) = Actual or Expected Sales (in dollars) - BEP (in dollars)
MOS Ratio = MOS (in dollars) / Actual or Expected Sales (in dollars)
The contribution margin per unit is the difference between the selling price per unit and the variable cost per unit. The contribution margin ratio is the ratio of the contribution margin per unit to the selling price per unit. The fixed cost is the cost that does not vary with the level of output or sales.
Data and Assumptions
The data for the food service at SWU football games are given in Table 1. The table shows the selling price per unit, variable cost per unit, and percent revenue for each product. The percent revenue indicates how much each product contributes to the total revenue of the food service.
Item
Selling Price/Unit
Variable Cost/Unit
Percent Revenue
Soft drink
$5.00
$1.50
25%
Coffee
$4.00
$1.00
25%
Hot dogs
$6.00
$2.00
20%
Hamburgers
$7.50
$2.00
20%
Misc. Snacks
$3.00
$0.75
10%
Table 1: Data for Food Service at SWU Football Games The assumptions for the break-even analysis are as follows:
The fixed cost of the food service is $100,000 per season, which includes salaries, rent, utilities, insurance, and depreciation.
The fixed cost is allocated to the five products based on their percent revenue. For example, soft drink and coffee each account for 25% of the fixed cost, or $25,000.
The food service operates for six home games per season, and the average attendance is 35,000 per game.
The food service sells one unit of each product per customer. Therefore, the sales (in units and dollars) of each product are equal to the attendance.
Results and Recommendations
The results of the break-even analysis for each product are shown in Table 2. The table shows the contribution margin per unit, contribution margin ratio, break-even point (in units and dollars), and margin of safety (in units, dollars, and ratio) for each product.
Item
Contribution Margin/Unit
Contribution Margin Ratio
BEP (in units)
BEP (in dollars)
MOS (in units)
MOS (in dollars)
MOS Ratio
Soft drink
$3.50
0.70
7,143
$35,714
27,857
$139,286
0.80
Coffee
$3.00
0.75
8,333
$33,333
26,667
$106,667
0.76
Hot dogs
$4.00
0.67
6,250
$37,500
28,750$112,500
0.75
Hamburgers
$5.50
0.73
4,545
$34,091
30,455$228,409
0.87
Misc. Snacks$2.25
0.7513,333$40,00021,667$65,0000.62
Table 2: Results of Break-Even Analysis for Food Service at SWU Football Games The results show that hamburgers have the lowest break-even point (in units and dollars) and the highest margin of safety (in units, dollars, and ratio) among the five products. This means that hamburgers are the most profitable product and the least risky product to sell at the food service. On the other hand, misc. snacks have the highest break-even point (in units and dollars) and the lowest margin of safety (in units, dollars, and ratio) among the five products. This means that misc. snacks are the least profitable product and the most risky product to sell at the food service.
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Based on these results, some recommendations for improving the profitability of the food service are as follows:
Increase the selling price or reduce the variable cost of misc. snacks to lower their break-even point and increase their margin of safety.
Promote hamburgers more than other products to attract more customers and increase sales.
Reduce the fixed cost of the food service by negotiating lower rent, utilities, insurance, or depreciation expenses.
Increase the attendance of the football games by offering discounts, incentives, or entertainment to the fans.
These recommendations can help Dr. Starr achieve his goal of making the food service a profit center for SWU.
Conclusion
This article has presented an HTML article on the topic "Case Study Food and Beverage at Southwestern University Football Games Zip". The article has used the break-even analysis to evaluate the profitability of each product sold at the food service. The article has also provided some recommendations for improving the profitability of the food service based on the results of the analysis.
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