Question

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 $3,240 per month for office/greenhouse rent, advertising, and a delivery van. Variable costs for the plants, fertilizer, pots, and other supplies average $24 per job. GTC charges $60 per month for the average job. Required: 1. How many jobs must GTC average each month to break even

Answer 1

Answer:

The company should provide, in average, 90 jobs per month in order to break even.

Explanation:

We will assume that the variable costs are proportional to the quantity and thus VC=a*Q

the profit obtained is

profit = P*Q  , (Price [$/job] * Jobs sold [jobs])

and the total costs are

total costs= FC+VC = FC + a*Q , FC=fixed costs

in order to break even the quantity sold should be enough to cover all costs, therefore

profit = total costs

P*Q = FC + a*Q → Q= FC/(P-a)

thus

Q= FC/(P-a) = $3240 / ($60/job - $24/job) = 90 jobs