Question

Break-Even for a Service Firm Jonah Graham owns and operates The Green Thumb Company (GTC), which...

Break-Even for a Service Firm

Jonah Graham owns and operates The Green Thumb Company (GTC), which provides live plants and flower arrangements to professional offices. Jonah has fixed costs of $3,705 per month for office/greenhouse rent, advertising, and a delivery van. Variable costs for the plants, fertilizer, pots, and other supplies average $23 per job. GTC charges $62 per month for the average job.

Required:

1. How many jobs must GTC average each month to break even?
jobs per month

2. What is the operating income for GTC in a month with 93 jobs? Enter a net loss as a negative amount.

What is the operating income for GTC in a month with 101 jobs?

3. Jonah faces a tax rate equal to 20 percent. How many jobs must Jonah have per month to earn an after-tax income of $1,380? Round your answer to the nearest whole number of jobs.
jobs per month

4. Suppose that Jonah’s fixed costs increase to $3,891 per month and he decides to increase the price to $77 per job. What is the new break-even point in number of jobs per month? Round your answer to the nearest whole number of jobs.

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Homework Answers

Answer #1
1
Unit contribution margin = 62-23= $39
Break-even point = Fixed costs/Unit contribution margin = 3705/39= 95 jobs per month
2
Operating income for GTC in a month with 93 jobs = (93*39)-3705= -78
Operating income for GTC in a month with 101 jobs = (101*39)-3705= 234
3
Required before tax income = 1380/(1-20%)= $1725
Required number of jobs = (1725+3705)/39= 139 jobs per month
4
Unit contribution margin = 77-23= $54
Break-even point = Fixed costs/Unit contribution margin = 3891/54= 72 jobs per month
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