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 Ryan determine when his business will begin to turn a profit.
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Using the information from the Learning Module 2, calculate the break-even point in each of the scenarios. Provide a response to the questions in the conclusion. Be sure to use either Word or Excel and to show your work.
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Scenario 1
After receiving bad service at the local car wash, Ryan has decided to start VDB Detailing! One of his first decisions when planning his business – he needs to calculate the number of vehicles he will need to detail before breaking even. His uncle has offered to let him use a small section of his shop for only $300 per month. Ryan is going to pay his friend, Gabe, $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 $120 per vehicle.
Question #1 – How many vehicles does Ryan need to detail each month to break even?
Scenario 2
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Ryan is now considering leaving his full-time job to grow his business but does not want to lose his salary.
Question #2 – If he decides to pay himself $2000 per month how many cars does he have to detail in a month now to break even? Assume all other figures remain constant from scenario 1.