Variable and Fixed cost, Price per item, Break-Even point

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You will assume the role of an entrepreneur starting a small company. Your company will produce and sell gourmet cupcakes through a storefront in a location of your choice. Your business is scheduled to launch on January 1, 2018.

Cost information:

  • Cost of goods sold:
    • Ingredients are .30 per cupcake
    • Boxes and Cupcake Cups are .05 per cupcake
  • Equipment that will be required to be acquired at the start of business includes ovens, racks, display case, counter, cash register, and other baking equipment and will cost $140,000.The equipment is expected to last 10 years without salvage value.Straight-line method of depreciation should be used.
  • On average one person can make, bake, and decorate 24 cupcakes per hour. Bakers are paid $15.00 per hour.
  • Sales personnel are required for 56 hours per week and are paid $10.00 per hour.
  • Monthly rent, which includes utilities, is $1,500.
  • Business insurance is purchased at a cost of $1,000 per year.
  • Advertising costs are expected to be $6,000 per year.

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