Join Jim Stice for an in-depth discussion in this video Analyze a business before making changes, part of Running a Profitable Business: Calculating Breakeven.
- Do you remember that Thai food restaurant…we talked about before?…- Thai food? I love Thai food!…Saute sticks, tom kha gai,…- Yeah, you told us that before.…Now let's assume there's a Thai food restaurant…up and running in our hometown of Grantsville, Utah,…and we want to analyze the expected impact…of various changes in operations.…- Okay, so tell us a bit about the current situation…and about the changes that are being considered.…- Well currently the restaurant is losing money,…about $3,000 per month.…The average price per meal is $10, the restaurant…is small, is open only in the evening, and averages…just 15 customers per each evening it is open,…which is about 25 evenings per month.…
- Okay, so what changes are being considered?…- [Man on right] Well, here's the list.…Raising prices, buy cheaper ingredients,…ask the landlord to lower the rent.…- [Left] Let's think about these possible changes in terms…of fixed cost, variable cost, and contribution margin.…- [Right] The reduction in the rent…is a change in a fixed cost.…
Want to learn more? Learn about three types of accounting—financial, managerial, and income tax—in their Accounting Fundamentals course.
- Breaking down fixed and variable costs
- Pricing a service to cover costs
- Identifying high contribution margins
- Calculating a company's breakeven point
- Conducting breakeven analysis with breakeven equations
- Computing target net income
- Exploring sensitivity analysis