Break-Even - Question #1.1

In the past five (5) years, your golf course has developed a reputation for having the best sand traps in the province. They are well kept and feature a layer of deep, light sand.

This has helped you develop a significant market share in the Sudbury golf market. You are a sought-after place for avid golfers to play for the day or become a member.

For all golf courses, maintaining sand traps is challenging in the best of times, but, you have a secret weapon! This secret weapon is a piece of machinery that you and your closest friend, Connor MacGregor have invented.

Its called the Sand Blower and this piece of equipment is specifically designed to manicure and maintain sand straps with limited manual labour perfect, every time!

The Sand Blower is an attachment that mounts to a standard tractor. The device uses a high-pressure aerator that passes the sand through its system thus eliminating debris and redistributing the sand evenly throughout the trap.

Last week you finally received the patent for the Sand Blower and now hold exclusive rights to the technology for 5 years. Because of this patent, you would be the first to market with this type of product. Both Connor and yourself feel that marketing this piece of equipment could prove to be very profitable.

With this opportunity upon you, you remembered that your strategy Professor told you that making mistakes on paper was a heck of a lot cheaper than in practice.

To quantify this opportunity, your next step is to run some numbers to see if this could be a financially viable venture.

This same Professor who was very passionate about having "cameras on" reinforced that the front end of the sales process when attempting to get a new product to market can be time-consuming and expensive.

Knowing that marketing, sales, and distribution are not your areas of expertise, you and Connor decided to engage George St-Pierre, the owner of GSP equipment (Golf Supply Equipment) as your marketing and sales agent becoming the exclusive distributor of the product.

They have boots on the ground ready to blitz sales with established relationships with most courses in Ontario. Make sure to consider the distribution channel you have selected to bring the product to market in your analysis

You estimate that Blower Brothers (your new company) will receive 55% of the retail price in gross margin and GSP (Golf Supply Company) the distributor partner will receive 45% of the retail price for their part in the deal.

Anticipated Costs:

• Rent. $25.00 a square foot (including square footage and common costs) for 2000 sqft of space. Calculate for the year.

• Yearly Depreciation $10,000.00

• Management Salaries (for yourself and Connor) $40,000 each per year

• Hourly manufacturing and assembly labour. This is estimated at 4 hours @ $20.00/hr for each unit.

• Yearly Insurance $6000.00

• Monthly external quality control and third-party audit $300.00

• General administrative expense including bookkeeping services. This is paid monthly at a flat rate of $350.00

• Engines for the Sand Blower machines purchased from Honda Canada $650 for each unit

• Other components such as plastics, metal, bolts, and additional materials to assemble each unit $175.00

• Yearly building maintenance $4000.00

• Monthly website development and maintenance fee $250.00

• Manufacturing equipment (buying and setting up the die-cut equipment and tools to assemble the Sand Blower units $14,500.00

• Freight to ship the finished product to the end-user (after purchase) for each unit $110.00

Here are your tasks:

Classify each cost as fixed or variable.

When tabulated:

Calculate the yearly total fixed cost.

Enter your answer for the FIXED COST HERE: $Answer

Calculate the variable costs for each unit

Enter your answer for the VARIABLE COST for each unit HERE: Answer

Calculate the unit contribution for each price. ($2500.00, $2700.00, and $3000.00).

Enter your answer for unit contribution for $2500.00 HERE Answer

Enter your answer for unit contribution for $2700.00

HERE Answer

Enter your answer for unit contribution for $3000.00 HERE

Answer

Calculate the break-even units for each price ($2500.00, $2700.00, and $3000.00)

Enter your answer to the break-even units for $2500.00 HERE $Answer

Enter your answer to the break-even units for $2700.00 HERE $Answer

Enter your answer to the break-even units for $3000.00 HERE $Answer

Calculate the break-even sales for each price ($2500.00, $2700.00, and $3000.00)

Enter your answer to the break-even sales for $2500.00 HERE $Answer

Enter your answer to the break-even sales for $2700.00 HERE $Answer

Enter your answer to the break-even sales for $3000.00 HERE $Answer

Calculate the profit for the sales target of 400 units for each price ($2500.00, $2700.00, and $3000.00)

Enter your answer for the profit at a price of $2500.00 HERE $Answer

Enter your answer for the profit at a price of $2700.00 HERE $Answer

Enter your answer for the profit at a price of $3000.00 HERE $Answer