Ama's Coffee Truck Break-Even Point Calculation

How many coffee beverages does Ama need to sell to break even?

Ama has a food truck where she sells coffee drinks such as espresso, lattes, and brewed coffee. She travels to various locations around the city to sell coffee beverages. Her daily fixed costs are $500, and her average price of a coffee drink is $5. Assume Ama's variable costs are $0.25 for every coffee drink she sells.

A) 100 coffee drinks
B) 200 coffee drinks
C) 50 coffee drinks
D) 75 coffee drinks
Final answer: To cover her daily fixed costs of $500, Ama needs to sell at least 106 coffee beverages, considering her average price per coffee drink is $5 and the variable cost per drink is $0.25.

Answer:

The correct answer is that Ama needs to sell at least 106 coffee beverages to break even.

To calculate the break-even point, we use the formula: Break-Even Point (units) = Fixed Costs / (Price per Unit - Variable Cost per Unit). In this case, Ama's fixed costs are $500, the price per coffee drink is $5, and the variable cost per drink is $0.25.

By substituting these values into the formula, we get: Break-Even Point = $500 / ($5.00 - $0.25) = $500 / $4.75 ≈ 105.26. Therefore, Ama must sell at least 106 coffee drinks to cover her daily fixed costs.

Although none of the provided options match the exact calculation, the closest option is A) 100 coffee drinks, which is an underestimate of the actual break-even point. It's important to round up to the nearest whole number in this case.