The Pretzel Cart Break-Even Day
Rosa rents a pretzel cart every Saturday at the farmers market. The rent is 60 dollars. Each pretzel costs her 1 dollar to make, and she sells it for 3 dollars. That means every sale leaves her 2 dollars after she pays for the ingredients.
The rent is a fixed cost, because she owes the same 60 dollars whether she sells nothing or sells a hundred pretzels. The ingredients are a variable cost, because they rise with every pretzel she makes. Business owners keep the two kinds apart because they behave differently.
Rosa wants to know her break-even point, the number of sales where she has earned back all of her costs and has neither lost money nor made any. To find it, she divides the fixed cost by the 2 dollars each pretzel leaves her. Sixty divided by 2 is 30. If she sells exactly 30 pretzels, she breaks even.
What happens if she sells fewer? With 20 pretzels, she brings in 60 dollars, spends 20 on ingredients, and still owes 60 in rent, so she loses 20 dollars. What if she sells more? With 50 pretzels, she brings in 150 dollars, spends 50 on ingredients, and pays 60 in rent, so she keeps a profit of 40 dollars. Every pretzel after the thirtieth adds 2 dollars to her profit.