MGMT 707 Operations Management

Break Even case

Jana and Marla, two recent college graduates, have decided to open their own

copy-service business on a part-time basis. They estimate that their annual

fixed costs are $32,000 and their average variable costs for each copy sold

at $0.03. They expect their selling price to average $0.07 per copy.

A Draw the break-even chart for their business.

B What is their break-even point, in number of copies and in dollars?

C After their 1st year of operations, in which they generated $84,000 in

revenues, Jana and Marla decide to pay themselves $5,000 each per year in

salaries. What do their annual sales have to be in the second year if they

want to make the same amount of profit as they did in their 1st year.

Hint: A: use 1,000,000 copies to determine the high end point.

B: Just multiply the number of copies by $0.07 to get the dollar amount.

C: #1, calculate the profit they made in year one.

#2, add profit from #1 to fixed costs.

#3, treat salaries as fixed costs.