Hi there,

Your calculation looks correct. You correctly found the current profit per day and then found the number of extra burgers they need to sell to make the promotion profitable.

In this case, the fixed cost would be the cost of running the burger company, such as rent, salaries, utilities, etc. However, the question doesn't provide this information, so we cannot calculate the exact fixed cost.

If you had the fixed cost information, you could use the formula you mentioned to find the breakeven units:

breakeven units = fixed cost / contribution margin

where the contribution margin is the difference between the price and variable cost per unit. In this case, the contribution margin per burger is $5 - $2 = $3, and the contribution margin per order with fries is $7 - $2.5 = $4.5.

Hope this helps!

Best,

Cristian

Hi there,

1) Is this correct? 

Yes, good job! The steps can be summarized as follows:

1) Calculate current profits

• Current profits from Burgers: 10k*3 = 30k
• Current profits from Fries: 4k*1,5 = 6k
• Total: 36k

2) Calculate burgers to match current profits

• New margin for burgers: 2.5 (5-2-0,5)
• Burgers to match current profits: 36k/2.5 = 14.400

3) Calculate the difference

• Extra burgers = 4.400

2) I know the formula for break even unit is:  breakeven units= fixed cost/contribution margin. In this case, what's the fixed cost? Thanks!

In this case there is no fixed cost. Given you want to do more than current profits (instead of more than fixed cost), the numerator in the formula is the old profit amount.

Best,

Francesco

Hi,

I’m sorry but this calculation is not correct. You need to subtract out the losses from offering our existing fries sales for free.

You need 6,000 burger sales not 4,400.

Let's break it down step by step.

Find out lost profit from offering fries: 

1. Current fries profit: 40% of burger orders include fries, so 0.4 * 10,000 = 4,000 orders. Profit from these orders is 4,000 * ($2 - $0.5) = 4,000 * $1.5 = $6,000 lost profits from offering fries for free
2. Adding fries to existing orders cost: 10,000 *.6 = 6000 orders at a cost of $.5 need to be added to all current orders. That costs us $3,000 in extra costs

To make the promotion profitable, we need to make more than $9,000 in new profits from additional burger sales.

Find out burgers needed

Each new burger sale brings $5 in revenue - $3 burger cost - $.5 fries cost = $1.5 profit per burger.

$9,000 = $1.5 x Number of Burgers

6,000 = Extra Burgers Needed

There's no fixed cost here.

Current profit: you got it right ($36000)

New margin of the bundle: $2.5

To make $36000 you need to sell $2.5 * X bundles. So

36000 = 2.5X

X = 14400.

That's 4400 more than what you sell right now. 

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