Suppose A Person Is Interested In Starting Up A Small Espres

Suppose a person is interested in starting up a small espresso stand and wants to estimate how much work it will take to make a profit

Suppose a person is interested in starting up a small espresso stand and wants to estimate how much work it will take to make a profit. After doing a bit of research, she learns that it will cost about $340 a month for permits plus roughly $0.79 per cup for ingredients and employee salary. If the selling price averages $3.25 a cup, how many cups of coffee must our entrepreneur sell to break even? Solve this by graphing the cost function and revenue function on the same grid. Start from 0 and count by 25 on the horizontal axis and 50 on the vertical.

Paper For Above instruction

The endeavor to establish a small espresso stand involves understanding costs and revenues to identify the break-even point where the business neither profits nor incurs losses. This analysis is essential for entrepreneurs to assess the viability of their venture and plan accordingly. By deriving the relevant functions and graphing them, prospective owners can visualize how many cups of coffee they need to sell to cover their expenses and reach profitability.

Introduction

The coffee industry remains a popular sector for small-scale entrepreneurs due to its low startup costs and steady demand. For an aspiring business owner, understanding the financial aspects—particularly fixed and variable costs—is crucial. The fixed costs, such as permits, are expenses that remain constant regardless of sales volume. Variable costs, like ingredients and wages per cup, fluctuate with the number of cups sold. Revenue depends on the selling price per cup and the volume sold, making it imperative to identify the point where total revenue equals total costs—marked as the break-even point.

Cost Function

The fixed monthly cost for permits is $340. Variable costs per cup—ingredients and employee wages—are approximately $0.79. Let x represent the number of cups sold in a month.

The total cost function, C(x), thus combines fixed costs and total variable costs:

C(x) = 340 + 0.79x

This linear function models how costs increase with each additional cup sold. The fixed cost of $340 is incurred regardless of sales volume, while variable costs increase proportionally with x.

Revenue Function

The selling price of each cup is $3.25. Revenue generated from selling x cups is given by the revenue function R(x):

R(x) = 3.25x

As with costs, revenue increases linearly with the number of cups sold. The goal is to determine the value of x where revenue equals costs, indicating the break-even point.

Finding the Break-Even Point

To find the break-even quantity, set R(x) equal to C(x):

3.25x = 340 + 0.79x

Subtract 0.79x from both sides:

3.25x - 0.79x = 340

which simplifies to:

2.46x = 340

Divide both sides by 2.46:

x = 340 / 2.46 ≈ 138.21

Thus, the entrepreneur must sell approximately 138 to 139 cups of coffee to break even. Since fractional cups aren't practical, selling at least 139 cups will cover fixed and variable costs.

Graphing the Functions

To visualize this, plot both the cost function C(x) and the revenue function R(x) over the range starting from 0 to about 175 cups. Using the specified axes scale (horizontal axis with intervals of 25 and vertical axis with intervals of 50), graph each function as a straight line. The point where the two graphs intersect is the break-even point.

At x=0, C(0)=340 (fixed cost), and R(0)=0. The cost line starts at (0, 340) and increases with a slope of 0.79. The revenue line originates at (0, 0) and rises with a slope of 3.25. The intersection at approximately x=139 marks where the business begins to generate profit.

Conclusion

Starting a small espresso stand requires careful financial planning. Understanding when sales reach the break-even point helps entrepreneurs set realistic sales targets and assess the financial feasibility of their venture. Graphing the cost and revenue functions offers a visual representation, clearly illustrating the sales volume needed to cover all expenses. With this analysis, the aspiring business owner can make informed decisions and strategize to achieve profitability efficiently. Proper planning and spreadsheets tracking sales and costs further support successful operations and growth.

References

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  • Lee, C., & Carter, S. (2021). Small Business Management: Launching and Growing Entrepreneurial Ventures. McGraw-Hill Education.
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