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Break Even Analysis Managers use tools like the Break-Even Analysis in both the planning and controlling functions of Management.
Break Even Analysis
Managers use tools like the Break-Even Analysis in both the planning and controlling functions of Management. In this assignment, you'll practice using the Break-Even formula to help Eric determine when his business will begin to turn a profit.
Instructions:
Using the information from the Planning and Controlling Techniques module, calculate the break-even point in each of the scenarios. Provide a response to the questions in the conclusion. Be sure to show your work.
Scenario 1
Eric wants to start a car detailing business but is unsure how many cars he will need to detail before making a profit. His cousin has offered to let him use a small section of his shop for only $300 per month. Eric is going to pay his friend $10/hour to help him. He has estimated his additional expenses and other details to be the following:
- Insurance $200/month
- His share of monthly utilities $95
- Wax (will yield 10 cars) $19.00
- Towels, soap, and other supplies $3.00/vehicle
- Leasing of equipment $100/month
- Marketing $105/month budgeted
- He estimates that it will take him 4.5 hours to detail a vehicle if he has help from his friend.
- He plans to charge $90 per vehicle.
Question - How many vehicles does Eric need to detail each month to break even?
Scenario 2
Eric is now considering leaving his full-time job to grow his car detailing business but does not want to lose his salary.
Question - If he decides to pay himself $2000 per month how many cars does he have to detail in a month now to break even?
Conclusion
Are these numbers attainable? Please explain. List two suggestions you could give Eric that would affect his break even point in a favorable manner, using the Break-Even Formula to justify them.
