(4 Marks) Break-Even Analysis

Given the following information, perform a simple, annual break-even analysis. State the formula, determine the annual sales required and the number of total customers required if the break-even point was to be reached at the end of the first year. Show all your calculations.

Expenses and Costs

Rent is $2,000/month.

Professional fees are $2,000/yr.

Equipment is $11,000/yr. which has a depreciation of 20%/yr.

Insurance is $1,000/yr.

Wages are $18,000/yr. plus a 5% sales commission.

Start-up inventory is $4,000.

Cost of Goods is 35% of sales.

Average purchase amount per paying customer is $100. One out of every two potential customers who enter the store will be a paying customer.

What is the break-even sales figure?

How many potential customers will the business require to break-even?