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.

Instructions:

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.

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 $2.00
  • Towels, soap, and other supplies $3.50/vehicle
  • Leasing of equipment $100/month
  • Marketing $105/month budgeted
  • He estimates that it will take him 4 hours to detail a vehicle if he has help from his friend (Hint: how much is this total per car?).
  • He plans to charge $120 per vehicle.

Question #1 – How many vehicles does Ryan need to detail each month to break even?   

Scenario 2

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.                                       

Conclusion

Are these numbers attainable? Please explain. List two suggestions you could give Ryan that would affect his break even point in a favorable manner, using the Break-Even Formula to justify them.