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 Mario determine when his business will begin to turn a profit.

Instructions:

Provide a response to the questions in the conclusion. Be sure to use Microsoft Word and to show each step of the math.

Scenario 1

After receiving bad service at the local car wash, Mario 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 $500 per month. Mario 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 $7.00/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 - Make a list of your fixed costs, variable costs, and price. Calculate the number of vehicles Mario needs to detail each month in order to break even.

Scenario 2

Mario 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. Again, show your math.

Conclusion

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