Question

Greg Morrison recently graduated from mortuary school. He is considering opening his own funeral home.

A funeral home is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many families are served.

Assume the annual fixed cost of operations is $920,000. Further assume that the only significant variable cost relates to burial containers like urns and caskets. An average casket costs $1,350. Greg's banker has asked a variety of questions in contemplation of providing a loan for this business.

(a) If the average family is charged $6,600 for services and a burial container, how many families must

be served to clear the break-even point?

(b) If the banker believes Greg will only serve 110 families during the first year in business, how much

will the business lose during its first year of operation?

(c) If Greg believes his profits will be at least $120,000 during the first year, how much is he anticipating

for total revenue?

(d) The banker has suggested that Greg can reduce his fixed costs by $170,000 if he will not buy any

vehicles. Greg can instead rent vehicles as needed. The variable cost of renting is $800 per family

served. Will this suggestion help Greg reach the break-even point sooner?

Answer 1

Answer to Question A and B:

Answer to Question C and D: