Question

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.

Answer 1