QuestionQuestion

You are a marketing director for a Mexican Taco Restaurant located in Lynchburg, VA. The average order size of your customers is $7.00 per order. That means that when all your food orders are divided by your total number of customers, the average order amount is $7.00.

Your Role/Assignment
Your variable cost per order is $3.00 in food costs and paper products. Of course, there are also fixed costs (whether you sell one or a hundred). These include your building lease ($2,000 per month, electricity $500 per month, and labor $3,100 per month).

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Break Even Analysis

Using this formula, what is the break-even point? In other words, how many meals, at $7.00, would need to be sold before you start making a profit?

Fixed costs/Average order - variable costs = Break-even point (Number of meals)

The problem is that, even after being in business for a year, your restaurant is selling slightly less than 1,000 meals. There are several actions that can be taken to reach your break-even point, which is necessary if you are to remain in business. As the marketing director is responsible for the product, price, promotion, and placement, you control many of the tools to make necessary adjustments.

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Introduction
One of the most important goals of every business is to ensure that it is generating revenue which is sufficient to cover the expenses of the company. The pricing strategies are very important since it involves balancing the competition posed by the external environment along with maintaining profitability for sustaining operations. Break-even analysis is an important tool that can be used by marketers to set their pricing levels on the basis of the costs associated with operations. This report presents break-even analysis for a Mexican Taco restaurant.

Break-even analysis
Break-even analysis refers to the sales level which needs to be achieved so that the total costs associated with operations are covered. This sales level is also known as zero-profit level since the profits are nil. The costs for the company can be divided into two components – fixed costs and variable costs....
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