Break Even Analysis

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 cousin $11/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 -Cell Phone for business calls $85/month -He estimates that it will take him 3 hours to detail a vehicle if he has help from his cousin. -He plans to charge $90 per vehicle. Question – How many vehicles does Eric need to detail each month to break even? Hint – do not forget about the costs in the scenario paragraph. Also, his cousin’s labor does not need to be broken down to by the minute – he makes $11/hour and it takes them 3 hours ($11x3hrs). 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 at least 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.