Jenny and Claire enjoy working with their hands. In particular they discovered the joy of woodworking, making cutting boards and cheese boards in the evenings and on weekends. They decided to work together to create a company called Wood Shop, which is a small side business.

At first, they were not sure where they could start their business, then they realized Jennys parents own their house which has a work shed that is not being used. Jennys parents will allow her to rent it for $2,400 a year. The work shed can be used to store her equipment and the wood. Jenny and Claire will need to buy woodworking tools such as saws, sanders, and clamps. All this equipment will cost $2,500. In addition, they will need to create a website to sell their boards which costs $35 a month. To be on the safe side, they should also buy insurance for $15 a month in case someone broke in and stole their tools. Jenny and Claire found that they could sell their cheese boards and cutting boards for $100 each. The wood will cost $40 and supplies to make each board is going to cost $10.

Another option is to make larger furniture such as coffee tables and desks. The workshop they were considering near Jennys parents home would be too small. Therefore, they found a place that is a shared wood shop called Creative Work Space. This wood shop has all the equipment already there and they can rent out the space for customer to come in to use their equipment to make their own furniture. The rent at Creative Work Space, is $6,000 a year. The benefit in this situation is that they would not need to buy any equipment and the insurance is included in the rent. However, they still need to create a website and pay a monthly charge of $35. Larger projects like tables and desks, require larger pieces of wood. The wood for these items would cost $80 dollars for each project and they could sell each table or desk for $300. Creative Work Space does not provide any supplies. The supplies for each desk or table will cost $20.

Considering the details provided:

a) Describe the purpose of a break-even analysis and state the formula (1 mark)

b) Calculate the break-even point for the cheese and cutting board part of the business (2 marks)

c) Calculate the break-even point for the coffee table and desk option of the business (2 marks)

d) Based on the two calculations, provide your reasons on which option is better for Jenny and Claire (2 marks)