Break-Even for a Service Firm Jonah Graham owns and operates The Green Thumb Company (GTC), which...

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Break-Even for a Service Firm Jonah Graham owns and operates The Green Thumb Company (GTC), which provides live plants and fl

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Answer 1

Answer #1

1. Calculation of Break even:-

Break even = Fixed costs / (Revenue per unit - Variable cost )

= $3,240 / ( $60 - $24 )

= $3,240 / $36

= 90 jobs.

2. Calculation of operating income with 88 jobs:-

Revenue = $5,280 (88 * $60)

Less:- Variable cost = $2,112 (88 * $24)

Contribution Margin = $3,168

Less:- Fixed Costs = $3,240

Operating Loss = -$72

Calculation of operating income with 95 jobs:-

Revenue = $5,700 (95 * $60)

Less:- Variable cost = $2,280 (95 * $24)

Contribution Margin = $3,420

Less:- Fixed Costs = $3,240

Operating Income = $180

3. Calculation of no.of jobs per month to earn after tax income of $1200:-

NOTE:- This problem is solved using reverse calculation

Revenue = $8,040 (134[NOTE 2] * $60)

Less:- Variable cost = $3,200 ( 134* $24) (rounded off)

Contribution Margin = $4,840 (1600 + 3240)

Less:- Fixed Costs = $3,240 ( Given)

Operating Income = $1600 ( 1200 + 400 )

Less:- Income Tax = $400 ( 1200 * 25 / 75)

Income after income tax = $1200 ( 75%) [NOTE 1]

[NOTE 1];- Assuming operating income is 100%. As income tax is 25% , Income after income tax is 75%.

[NOTE 2] :- Contribution margin per job = $60 - $24 = $36

Contribution margin = $4,840

No.of jobs = $4,840 / $36 = 134 jobs (rounded off)

Jonah require 134 Jobs to earn a $1200 after tax income

4. Calculation of new break even point if fixed costs are $3,400 and price is $75 and variable cost is $24:-

Break even = Fixed costs / (Revenue per unit - Variable cost )

= $3,400 / ( $75 - $24 )

= $3,400 / $51

= 67 jobs.

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Answer 2

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