Imagine you are running a new company that wants to start small and then scale. As the manager, you start out as the only full-time employee and you have a part-time support staffer and a part-time marketing employee.

1. At the beginning of your operations (year 1), the price of your product is $100. Your competitors are charging $110. Your direct costs are $60/unit ($40 labor, $20 materials). Your monthly overhead is as follows: facilities all-in $3,000, management $10,000, sales-marketing $6,000, support staff $2,500, IT-Telecom $500, accounting/legal/consulting $2,000.

What monthly volume of sales do you need to break even in year 1? ____________units/month

B) Now you are in the second year of operations. You have doubled your volume from year 1 where you exactly broke even. For year 3, you decide to expand the scale of your operation. You are hiring a second full-time manager and bringing on full time sales and marketing staff.

IIBIf you expect to double sales again from year 2 to 3 (thus quadrupling your year 1 volume), how much can you add to your staffing and management salaries and still break even? (Hint: Use the Burn section of Module C)

$______________/month

C) In year 4, competition is tightening in the market. Your competitors are now charging $100 and it is impacting your volume. With a burn rate of $48,000/month, monthly sales of 3000 units, and the same direct costs as before, what is the lowest price you could charge and still break even? (Hint: use the Pricing section of Module C)

$______________/unit

d) In year 5, you set your price at $90 and your burn rate is unchanged ($48,000). You expect to see 3600 units/month in sales. You decide to move to a more ecologically sustainable supply chain and you need to know what are the highest direct costs you can bear and still breakeven. What is the most you can pay in materials (assuming labor and other costs are unchanged)?

$______________/unit